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Chief executive’s policy address 2017

Tax cuts ‘helpful’ only if companies earn a profit, says SME owner

Mobile gaming company founder asks government to help start-ups secure funding to give them a jump-start

PUBLISHED : Wednesday, 11 October, 2017, 9:16pm
UPDATED : Wednesday, 11 October, 2017, 11:28pm

The founder of a Hong Kong gaming start-up welcomed Chief Executive Carrie Lam Cheng Yuet-ngor’s research and development (R&D) incentives announced during Wednesday’s policy address, but said he saw little benefit in the tax cuts for small businesses.

Silver Yu Wing-fung, 33, established his mobile gaming company, Skytree Digital, in 2013. Like many start-ups, Skytree did not turn a profit for the first few years.

“If we don’t earn any profit to be taxed, [the cuts] mean nothing to us,” Yu said, adding that he believed that 90 per cent of companies in Hong Kong are SMEs, which are “struggling to survive”.

“They’re not struggling to pay tax, they are more worried about paying salaries and rent,” he said.

Skytree Digital made its first profit this year of around HK$1 million, from about HK$4 million in revenue.

If we don’t earn any profit to be taxed, [the cuts] mean nothing to us
Silver Yu

In her policy address, the chief executive announced a tax cut from 16.5 per cent to 8.25 per cent, for businesses that earn HK$2 million or less in profit.

If Yu’s company maintains the same profit level next year, Skytree’s tax payment will decrease from HK$165,000 to HK$82,500. Yu said he welcomed any savings but it would not spur significant investment.

Carrie Lam says tax breaks on profits and R&D among measures to keep Hong Kong competitive

“We can use the money to buy some equipment, and that’s all,” Yu said. On whether he could put the money towards manpower, Yu said that the company would save HK$6,875 a month, which is not enough to hire an extra person.

Yu had more praise for the tax breaks to promote investment in R&D.

For the first HK$2 million, companies can get a 300 per cent tax deduction. For expenditure beyond the HK$2 million benchmark, there will be a 200 per cent tax deduction. Currently, companies enjoy a 100 per cent deduction for R&D expenses.

Yu said that while most start-ups would earn back their founder equity over time, they might not earn enough to plough new funds into the business. But, the tax deduction would encourage more founders to invest in new R&D, he said.

Hong Kong needs to throw more caution to the wind when it comes to backing start-ups

Overall, Yu gave a thumbs-up to the new policy measures, pointing out that there was “no support at all” from the government a decade ago. He asked that the government also look at helping start-ups secure funding, as a way to jump-start their success.