Leadership hopeful John Tsang puts tax rethink down to a ‘new trend’

Experts welcome proposals but ask why he did not bring them in when he was financial chief

PUBLISHED : Tuesday, 07 February, 2017, 3:17pm
UPDATED : Tuesday, 07 February, 2017, 11:52pm

Chief executive hopeful John Tsang Chun-wah said he did not propose his tax reform plan in all his years as financial secretary because such thinking was a “new trend”.

His response came after some questioned why he did not implement his proposals during his nine years in the financial hot seat.

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Proposals revealed by Tsang on Monday feature a “two-tier” progressive profits tax and a “negative income tax” that aim to ­lighten the burden on small and medium-sized enterprises (SMEs) and poor families.

“The tax proposal is very timely as [it comes] ... when other countries around the world are also talking about tax reduction,” Tsang said on Tuesday.

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“It is a new trend, which was raised only a few months ago,” he added, citing the recent stance taken by British Prime Minister Theresa May and US President Donald Trump.

Tsang said Hong Kong had to be prepared for the global trend.

Regarding “negative income tax”, which exempts those who earn below a certain threshold from paying tax while giving them subsidies, he said this could not be enforced by the current administration as it overlapped some welfare allowances.

The progressive profits tax would not be too complicated as there were only “two tiers”, and it would bring relief to SMEs, encourage them to invest again and help young innovative enterprises to grow, he said.

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Former Taxation Institute of Hong Kong president Marcellus Wong Yui-keung welcomed the pledge to review the city’s tax ­system, even though he said Tsang had made similar promises while financial secretary.

Wong, a senior adviser to PricewaterhouseCoopers told a radio programme that the “two-tier” profits tax regime – under which more profitable companies would face higher tax rates than less profitable enterprises – would help SMEs.

The business community had called for such a system in the past, only for the government to describe it as “too complicated”.

Another tax expert, Anthony Tam Chun-hung, said it was ­important to maintain a competitive tax regime to lure businesses to the city, especially when other places were gradually lowering their rates.

Tam, from the Institute of Certified Public Accountants, said a negative income tax on those who receive low salaries but own sizeable assets may prove a challenge.

Carrie Lam Cheng Yuet-ngor, who is seen as front runner for the top job, said it was “strange” for her rival to bring up much-discussed topics now.

On this, Wong said: “I guess Tsang’s electoral office has consulted the public before drafting the manifesto. His position is different now, so the starting point of his policy would also be different.”

A negative income tax should be seen as part of a social welfare programme if it was launched, Wong said, adding that Canada had the same arrangement.

“Applying a negative income tax doesn’t mean the government needs to spend more” as other social welfare expenditure could be aligned with the new tax.