UNDER THE GOVERNMENT'S proposed goods and services tax, financial services will be zero-rated. This means they are exempt from the tax. At the same time, financial institutions will be able to claim back GST on their purchases. 'The GST proposal, as it stands, should not affect Hong Kong's position as a leading financial centre, not forgetting that this leading status also depends on our infrastructure and rule of law,' said Tim Lui Tim-leung, a tax partner at PricewaterhouseCoopers. 'As long as GST does not affect these things, we should be fine,' he said. Mr Lui is a member of the Advisory Committee on New Broad-based Taxes. The committee made its report in 2002 after studying different tax options, including tax on dividends and higher salaries tax. 'When we did our work it was at a time when the government was in serious deficit and our remit was to examine taxes that could raise revenue. On a longer- term basis, GST was a possibility,' he said. 'On a short-term basis we singled out three things - reducing personal allowances, increasing the tax rate and introducing a land and sea departure tax.' Financial Secretary Henry Tang Ying-yen has been pushing hard for the implementation of GST. For accountants, the impact of a GST on their daily business goes hand in hand with the complexity of its regime. The proposed system has no exemptions and would therefore be administratively easier to implement, as there would be fewer disputes than under a more complex regime. Big businesses would probably fare better than small and medium-sized businesses (SMEs), even if the latter were given exemptions. Compliance could be helped by IT solutions, and prior experience of similar taxation in other jurisdictions would help. Mr Lui said SMEs, however, were still likely to face difficulties. 'Any additional administrative cost or outlay of expenditure might cause some financial burden to SMEs,' he said. 'That's why I think the government is thinking about giving SMEs a grant at the point of implementation so that they can have some financial assistance in terms of potential set-up costs.' Taking care of SMEs is of paramount importance under any GST regime, as these businesses represent more than 98 per cent of total establishments and provide job opportunities to more than half the workforce. Mr Lui said compliance costs would be about HK$5,000 to HK$6,000 a year, based on international experience. 'In Australia, it costs between A$500 and A$800 [HK$2,900 to HK$4,700] to comply each year, and in Singapore about S$1,000 [HK$4,900]. Once you take care of the initial set-up costs, the ongoing costs are not that much, unless you have to hire more people.' Any GST regime - complex or otherwise - will, of course, mean work for accountants. Even a reasonably straightforward system with few exemptions will provide them with initial advisory work. 'Experience elsewhere suggests that if you keep the GST fairly simple, accountants may be asked to help out in terms of advisory roles, but the implementation of the tax is not a licence to print money,' Mr Lui said. 'If the system is simple enough, this is not going to be big dollars for the accountants,' he said. In other jurisdictions where the system is complicated and the tax rate is high, then yes, a segment of accountants are fully occupied because of the complexity of the rules and principles. 'But so far, what is being proposed in Hong Kong avoids this complexity. And on the basis that we are going to operate a fairly straightforward system, the accountants are not going to be in it for big money,' he said.