Chief executive candidate John Tsang touts tax breaks for SMEs, allowances for low-income families

Popular underdog in the leadership race proposes ‘two-tier’ approach to taxation to lessen the burden on new businesses.

PUBLISHED : Monday, 06 February, 2017, 10:07pm
UPDATED : Monday, 06 February, 2017, 11:29pm

In a bid to encourage new ­businesses and boost Hong Kong’s economy, chief executive contender John Tsang Chun-wah has proposed a “two-tier” ­progressive profits tax to lessen the burden on small- and ­medium-sized enterprises.

Such a tax regime would help develop the city’s financial, tourism and innovative industries, he said when unveiling his election platform on Monday.

He also floated the idea of a “negative income tax”, or allowance, to help low-income ­families.

Tsang, the popular underdog in the leadership race and formerly the city’s financial chief for ­almost a decade, also suggested making developers create extra floor space in new residential and commercial projects to accommodate homes for the elderly or child care centres.

Leaders of the business and social welfare sectors welcomed Tsang’s proposals, but a veteran tax consultant said clear guidelines were needed to avoid abuse of the “two-tier” tax regime.

Tsang’s recommendations came a day after the front runner in the race, Carrie Lam Cheng ­Yuet-ngor, who used to be a rank above him as chief secretary, said she would not carry any baggage when it came to tax reform. Lam had vowed that her administration would prioritise business convenience and help the needy.

Setting out his vision, Tsang promised to study the feasibility of a progressive profits tax that would encourage the development of start-ups and SMEs, “spur reinvestment, and enhance SMEs’ competitiveness”.

Tsang expanded on the idea at a press conference: “Reducing tax is a global trend nowadays ... and we have to consider if our tax rate is competitive enough.”

He also said the proposal would not have a significant impact on the government’s coffers as 800 large companies had contributed 60 per cent of the government’s revenue from profit tax in recent years.

Asked why he did not introduce the measure during his time in government, he said only: “I have heard the opinion from business chambers, and we have to go through these procedures so that we can propose this today.”

Hong Kong Greater China SME Alliance Association’s life president Jimmy Wan Hoi-hung said Tsang had failed to explain how the progressive profits tax would work and doubted if he truly understood the hurdles faced by SMEs.

But Jimmy Kwok Chun-wah, deputy chairman of the Federation of Hong Kong Industries, supported the idea. “Our federation has urged him to adopt it for at least three years ... We proposed that for companies earning less than HK$1 million a year, their tax rate should be reduced to 10 per cent,” Kwok told the Post. “It would attract investment from Southeast Asia and beyond ... and create more jobs for Hong Kong.”

Marcellus Wong Yui-keung, a senior adviser at PwC, also welcomed the idea. But he suggested the lower tax rate should only apply to independent companies, and not those affiliated to another business entity. “Otherwise it would encourage big corporations to split,” Wong warned.

On land and housing, Tsang proposed introducing a new measure requiring developers of newly auctioned or redevelopment projects “to build extra gross floor area” for government, institutional or community purposes. The construction costs of these areas would be reflected in the land ­premium.

Yip Kin-chung, president of Hong Kong Social Workers’ General Union, welcomed Tsang’s proposal, noting he also promised to reinstate a population-based planning ratio to ensure adequate elderly services. “This has always been our call as the city has been going through hard times finding plots for elderly care centres which are not welcomed by developers,” Yip said, but he stopped short of backing Tsang.

Additional reporting by Emily Tsang and Jeffie Lam