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Carrie Lam

Hong Kong leader Carrie Lam mulls huge cut to profits tax for city businesses

The chief executive is considering reducing profits tax to below 10 per cent on the first HK$2 million

PUBLISHED : Wednesday, 27 September, 2017, 9:25pm
UPDATED : Thursday, 28 September, 2017, 12:00am

Chief Executive Carrie Lam Cheng Yuet-ngor is looking to go beyond her election campaign promises and reduce Hong Kong’s profits tax rate from the current 16.5 per cent to below 10 per cent for all businesses.

Two weeks before delivering her maiden policy address, the city’s leader on Wednesday said the new tax rate would apply to the first HK$2 million of profits made by businesses of all sizes.

The move would also mean going below the 10 per cent tax rate which she had proposed when she was running for the top job earlier this year.

Tax breaks in store for Hong Kong start-ups as city struggles to stay competitive

“My fiscal philosophy is to invest, so cutting taxes is also a form of investment. I believe in less is more. Collecting less doesn’t mean there will be less,” she said at the Forbes CEO conference.

“My intention is to reduce the tax burdens on start-ups and SMEs, but to do it without changing the very simple tax system. It’s likely to take this form: for the first HK$2 million of profits of every business, we will charge a rate lower than 16.5 per cent.”

She said she had suggested lowering the rate to 10 per cent earlier, but added: “I am working very hard to see whether I can go lower than 10 per cent.”

The city was sitting on a huge fiscal reserve of about HK$1 trillion, which could keep the government running for two years without any revenue, she said.

Last month, Financial Secretary Paul Chan Mo-po said the government would have to forgo about HK$5 billion in annual tax revenue if the profits tax rate was to be lowered to 10 per cent.

Hong Kong set to forgo HK$5 billion in tax revenues after reform to ease burden on SMEs: finance chief

Joe Chau Kwok-ming, chairman of the General Chamber of Small and Medium Business, said the 10 per cent for the first HK$2 million of profits was already great news.

It was also “delivering a welcoming message” to foreign companies, especially those looking for opportunities under China’s “Belt and Road Initiative”, Chau added.

But Chong Tai-leung, an associate professor of economics at Chinese University, criticised the potential tax cut as “hasty, risky and politically unfair”.

Chong said the reduction from 16.5 per cent to less than 10 per cent would not make Hong Kong a more attractive investment destination.

“Where else in the world can a company find a profits tax rate lower than ours?” he said. “Impact on public finance will be hard to recover because you can’t easily raise a lowered tax rate.”

Reform that will see HK$5 billion in tax breaks for start-ups and small businesses to go before Legislative Council in 2018

He suggested Lam should instead consider cutting income tax first.

Meanwhile, the chief executive said she told visiting US Secretary of Commerce Wilbur Ross, whom she met on Tuesday, that Hong Kong was a strong supporter of free trade when he asked her about the city’s economic strategy.

“But in order to grow our economy, I have come up with this strategy that we should grow our external economy, through our investment in overseas countries and on the mainland,” she said.

Lam spoke to Ross against the backdrop of US President Donald Trump’s advocacy for protectionism.