The untimely implementation of a sales tax could cause the already suffering retail industry to contract further, bringing more store closures and higher unemployment in Hong Kong, according to leading retailers. '[A new tax] will lead to further financial losses and closures, resulting in even greater lay-offs, unemployment and social grievances,' said Dickson Poon, chairman of high-end retail chain Dickson Concepts. 'A large number of retailers will be eliminated.' A consumption tax, which was one option floated early last week by the Advisory Committee on New Broad-based Taxes, was seen as unwelcome by retailers, economists and tax consultants amid the prolonged economic downturn. The committee was set up by former financial secretary Donald Tsang Yam-kuen in his last Budget to look into broadening Hong Kong's tax base. A 3 per cent sales tax was one of 13 options put forward for public consultation. Yu Pang-chun, chairman of the Hong Kong Retail Management Association and director of Yue Hwa Chinese Products Emporium, said he would not rule out more companies closing down, especially smaller firms with less than HK$5 million in annual turnover. 'There [would be] another round of lay-offs and plans to move companies' operations and administration to other cities [up north]. These [factors] are all bad news,' said Mr Yu. Mr Yu said the economic downturn continued to depress market sentiment. 'Consumers will cut back on spending if they are not secure about their jobs and have no confidence in the market,' he said. The retail sector was presently hampered by high rents, lower sales margins and a leakage of consumer spending to the mainland, according to retailers. Implementation of the Mandatory Provident Fund had added to operating costs by increasing labour expenses, they said. Mr Poon said retailers were facing the toughest market conditions in 20 years. 'There is hardly any light at the end of the tunnel. If a GST [goods and services tax] is introduced at this time in Hong Kong, there will be infinite darkness,' he said. 'Retail is still suffering,' said Mr Yu. 'We are by no means recovering. There [was] 1 per cent growth in dollar sales value in the first six months compared with last year but we are still 19 per cent behind in dollar sales value since 1997.' He said the retail association was concerned that a sales tax would be difficult to implement at small- and medium-sized enterprises, which make up 98 per cent of Hong Kong companies. 'The tax would have a larger impact on the big players, and that means it is not a level playing field,' said Mr Yu. Arnold Wong, director of accounts and finance at Jusco Stores Hong Kong, which is part of the AEON Group, said a new tax would increase the price of consumer goods and decrease buying power. The tax would eventually be pushed on to consumers as retailers were already working on extremely small margins. 'There is simply no room to absorb the tax and it will definitely be passed on to consumers,' Mr Poon said. Retailers would also have to bear additional administration costs due to book-keeping changes, acquiring new cash registers and educating staff to cope with a new tax system. Financial secretary Antony Leung Kam-chung said on Thursday there would be no new tax in the short-term due to the economic downturn. He left the way open for a broad-based tax 'when the right time comes'. Mr Poon said that if a tax had to be introduced, it should be when Hong Kong and its neighbours had returned to strong and sustainable economic growth. 'People have to feel bullish and confident with their personal income and money-making opportunities. If the timing is wrong, it will throw our economy into a depression,' he said. 'It doesn't matter whether the tax is imposed in the long-term or short-term, it would have a negative impact on retailers because consumers would not agree to paying this tax,' Mr Wong said. Mr Yu said retailers were caught in a predicament. 'Retailers have already cut down on controllable costs. But if they don't absorb the tax and pass it on to consumers, they won't buy,' he said. Paul Chow, tax partner at accounting firm Grant Thornton, said: 'Hong Kong is the only developed country that does not have any form of general consumption and sales tax . . . the Government's positive non-intervention policy has served Hong Kong well over the years. Any deviation from this policy will be costly to Hong Kong's treasure of a laissez-faire system.' Mr Chow also said a broad-based consumption tax would be cumbersome to administer. Once implemented, there would be no turning back given the investment and logistics involved. Yvonne Law Shing Mo-han, partner at Deloitte Touche Tohmatsu, said: 'We do need to broaden the tax base, but this does not mean we need to have a sales tax.' She suggested a revision of all indirect taxes.