Taxes could rise in the near future as government spending on public housing and land development are expected put the budget in the red, a leading accounting firm has predicted.
To ease the burden on individual taxpayers, KPMG China is urging the government to reconsider bringing in an indirect tax such as a goods and services tax (GST) which it says will widen the tax base and stabilise incomes.
In the firm's annual budget forecast yesterday, Jennifer Wong Wan How-yee, a tax partner, said the government could record a surplus of HK$23.7 billion for this financial year which ends in March.
The prediction goes beyond the government's initial forecast in February last year, when Financial Secretary John Tsang Chun-wah estimated that Hong Kong would have a budget deficit of HK$3.4 billion this financial year.
Last week, it was revealed that there was actually a surplus of HK$40 billion in the nine months to December 31.
Wong attributed this surplus to the higher revenues from land sales, stamp duties and tax collection but has forecast a budget deficit of HK$45.9 billion for the next financial year.
"The chief executive has demonstrated his determination to increase public housing and develop new land extensively in his policy address," she said.
"As a result, we will see a reduction of land revenues and an increase in capital expenditure."
She estimated that the capital expenditure in the coming year, such as the Sha Tin to Central Link and the Hong Kong-Zhuhai-Macau bridge, could reach HK$13.4 billion, compared with HK$8.4 billion this financial year.
"Looking at past experiences in the 1980s, 1990s and 2000s, the government increased the tax rate soon after it recorded a budget deficit."
It could again be the case in the coming years unless the current tax system is overhauled," Wong said, adding that imposing a GST of 3 per cent to 5 per cent could stabilise individual incomes and widen the tax base.
Chief executive candidate Henry Tang Ying-yen supported a GST in 2006 when he was the financial secretary but the plan did not proceed because of public opposition.
The finance secretary will be delivering his budget by the end of this month and there are no signs the government will be revisiting the controversial goods and services tax.
A survey in 2006 showed that the majority of accountants strongly opposed a goods and services tax, with nearly two-thirds of respondents rejecting the then government's proposal.
Sixty-two per cent were against a GST, compared with 31 per cent in favour, according to the survey commissioned by the then Legislative Council's Mandy Tam Heung-man.