Keep the GST in perspective

The government says its aim in proposing a goods and services tax is to broaden the tax base. Is this true? The purpose of taxation is to raise revenue for the government to spend on public needs. It is also a way to redistribute wealth within a society.

Hong Kong taxes people's salaries, not their total income. The business lobby has always resisted taxing income beyond what one earns as an employee.

For example, if Hong Kong had an income tax like many other parts of the world, then we would pay tax on dividends. The truly wealthy in Hong Kong do not earn salaries. Many of them take dividends from their companies, which are not taxed as their individual income.

Some argue that dividends are indeed taxed, since companies pay them out of after-tax profits. While that is true, a company is a separate entity from a person, and dividends are a source of individuals' income.

If Hong Kong taxed dividends, how much revenue would it raise for the government? And what is the logic of not taxing dividends in Hong Kong? These questions were not addressed in the GST consultation document the government released last week.

Nor does Hong Kong tax capital gains, unlike many other jurisdictions. The GST document is also silent on this. So, the government's consultation is not a tax-reform exercise, as it claims, but a mere GST promotion.

A genuine tax-reform debate would require the government to explain the current tax system comprehensively. It should then produce an objective assessment of the pros and cons of the system.