Ask Melanie | Ask Melanie: Tax loans
Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to [email protected]
Let's tackle the second question first. The interest charged on an unsecured tax loan is higher than a mortgage, for example, where your property can be sold if you default.
Banks have just started their seasonal push to lend money for tax payments. Comparing the various deals takes time but basically rates depend on how much you borrow, the loan term and when you apply. The more you borrow the lower the rate: a loan of more than HK$300,000 costs less than 5 per cent per annum; a loan of less than HK$20,000 costs nearly 9 per cent. Loans are usually from six to 12 months. Some banks discount the rates by nearly 50 per cent if you apply before December 31. Credit card companies also offer tax loans but at alarming rates.
Assuming you have otherwise set aside savings to pay your tax, the only reason for a tax loan would be if you can invest your savings for a higher return than the cost of the tax loan. Returns being relative to risk, this is usually difficult at any stage of market cycles. I don't recommend punting your tax money.
If you don't have enough money for tax you will have to figure out how to make provision for tax for two years, and that can be painful.
Some people count on a 13th month salary, or annual bonus, to pay their tax which is fine if it comes to fruition. Watch out for falling bonuses in tough times.