Fears emerge that ill-timed broad-based consumption tax may cause further contraction in weak sector

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.