The city's annual budgets have underestimated forecasts of profits tax income over the last four fiscal years for which figures are available, research by the South China Morning Post shows.
The biggest gap was seen in profits tax revenue in 2011-12, when an additional HK$21 billion over the original estimate was collected in taxes from companies. In the following fiscal year, profits taxes exceeded expectations by HK$20 billion.
Over the four years since 2009-10 to 2012-13, profits tax has increased by 64 per cent.
One accountant said the discrepancies signalled a need to revamp the tax structure across the board to stabilise government income and help plan for an ageing population and future economic downturns. "The profits tax revenue very much depends on the economy … so the tax base should be broadened to stabilise future incomes," said Ronald Yam, CPA Australia's divisional president for Greater China.
"A progressive element should be added to the profits tax. Small and medium enterprises should pay less tax, such as 13.5 per cent, while that for large corporations may be levied at 17 per cent," he added.
Currently, Hong Kong applies a standard profits tax rate of 16.5 per cent to all companies. The city has one of the world's simplest taxation systems, with the government deriving half of its revenue from profits and salaries taxes. Every budget gives income estimates for the upcoming fiscal year but actual figures are not known until the following year.
The Post found in a study of the annual budgets that the actual profits revenue rose from HK$77 billion in 2009-10 to HK$93 billion and then HK$119 billion in the next two years, hitting HK$126 billion in 2012-13, the last actual figures available.
In last Wednesday's budget, Financial Secretary John Tsang Chun-wah put expected profits tax revenue for 2014-15 at HK$117.5 billion - HK$14 billion down on the original estimated profits tax revenue for 2013-14, which was later revised downwards from HK$131 billion to HK$120 billion.
Accounting-sector lawmaker Kenneth Leung attributed the gap between the estimates and actual revenues to the open nature of the city's economy.
"Although the figures for the past few years show that profits tax is the largest contributor to the government's tax revenue, it is difficult to predict the profits tax revenue since Hong Kong is an open economy," said Leung, a tax consultant at Clifford Chance. "Hong Kong taxes profits on a territorial basis and not on a residential basis, so companies can shift profits in and out of Hong Kong by altering their operations within and outside the city."
The working group on long-term fiscal planning - an expert team commissioned by Tsang - warned on Monday that a structural deficit could emerge in seven years' time and dry up financial reserves.
While the financial secretary has predicted overall deficits on its financial balance for the four consecutive years from 2009-10, all of these years actually had big surpluses.
The error was greatest in 2010-11, when there was a surplus of HK$47.6 billion; Tsang predicted revenue would be HK$47.2 billion short of expenditure.