$5m threshold is eyed for sales tax
The government is set to propose $5 million annual turnover as the minimum threshold for businesses to fall under the proposed goods and services tax scheme.
If the limit is adopted, the controversial new tax will catch 65,000 of the 750,000 firms on the city's business register. Companies with a smaller turnover can choose whether to take part, according to a government source familiar with the consultation paper, to be unveiled on Tuesday.
Compliance costs for such companies may be relatively high, and it would be for them to decide whether to join the GST regime. According to the government's proposals, companies under the scheme will be eligible for a refund on the so-called 'input tax' - the GST they pay in the course of doing business.
For example, a company that has acquired or rented a commercial property would have the GST on the purchase price or rental refunded. Those who opt out of the scheme will not be able to claim such refunds.
Residential property transactions, including both purchase and rental, will be exempted from GST, but the commission fees paid to property agents handling the transactions will be subject to the 5 per cent tax.
'The proposal is in line with international practice and recommendations by the International Monetary Fund,' the source said, dismissing property price considerations. 'This is more for avoiding complicating the GST system,' he added.
The source said the economic impact on businesses would be limited, adding that if the net revenue generated by GST was applied to cutting profits tax, the tax rate could be lowered by 5 percentage points to 12.5 per cent.
He said the government would scrap or adjust some of the existing indirect taxes, such as the first registration tax for vehicles and alcohol duty, following the introduction of GST for those services.
The tax will cover most government services, such as water charges, but services arising from compliance with government regulations, such as passport issuance, will be exempted.
