Budget season raises some taxing questions

Chris Chapel

AS the March 3 Budget looms closer, more and more readers will be taking an interest in taxation matters.

This is certainly true of Mr Jefferson P. Vanderwolk, a lecturer at the University of Hongkong, and Mr Mark Kovalevsky, of Causeway Bay, who have taken issue with comments in this column earlier this month on Hongkong's tax system.

In letters to this newspaper, Mr Vanderwolk disagreed with the contention that Hongkong's lack of representational democracy was the main reason its tax system had remained simple and transparent, while Mr Kovalevsky said our system was not, as describedin Monitor, efficient.

Business Post has had a closer look at the subject, and can offer readers more information.

Mr Vanderwolk said: ''There is no clear evidence of any connection between democratic government and high taxes on business.'' He used Singapore as an example of a ''high-tax country with an extremely interventionist government'', and said democratic governments around the world had, in fact, lowered corporate income taxes over the past decade.

Several have, but the trend is not iron-clad. Singapore, arguably a democracy in practice, is cutting its maximum corporate tax rate to 30 per cent from 31 per cent this year, and continues to offer special incentive packages to industry in a bid to attract companies setting up regional headquarters.


In contrast, the world's most powerful democracy, the United States, has a new leader whose first economic package includes a strong move to raise more revenue from big personal and corporate taxpayers.

President Bill Clinton has proposed raising the maximum personal tax rate to about 40 per cent from its current level of 31 per cent, and has asked Congress to lift the corporate rate.

The president is also suggesting a clamp on transfer pricing - a creative accounting technique involving the shuffling of reported profits to minimise tax - to raise nearly US$4 billion over the next five years.

And he is turning 2000 IRS agents loose on non-tax-filing Americans, most of whom live overseas.


According to figures provided by Peat Marwick partner Roderick Sage, Hongkong, Indonesia, Singapore and Thailand (only recently joining the ranks of functioning democracies) stand out as among the lowest personal taxing countries in Asia.

Mr Patrick Paul of Price Waterhouse pointed to another non-democratic nation with an even better system than Hongkong's - Bermuda, which has no income tax at all.


Mr Kovalevsky took a different approach, accepting that Hongkong's tax system is simple, but denying its efficiency using his own example.

He said he had been billed last year for three years' tax because of mail sent by the Inland Revenue to the wrong address.

The addressing system undoubtedly needs improving, but the overriding strength of the system - its clear terms and its lack of loopholes found overseas - remain unquestioned.


Mr Kovalevsky said it was immoral for the Government to keep building up a huge surplus and suggested donating it to taxpayers to reduce inflation. He could have a point there.