Corporate tax 'easy to reduce'

HONG Kong's corporate tax rate of 17.5 per cent could easily be cut to 17 per cent by Financial Secretary Sir Hamish Macleod in his budget on March 2 without reducing the amount of money collected by the Government, argue some analysts.

Marshall Byres, tax chairman at accountant Ernst and Young, believes lower taxes would give businesses the incentive to undertake more activity, helping maintain corporate tax at the same level.

''Financial Secretary John Bremridge increased profits tax in 1982-83 and his yield went down,'' Mr Byres said. ''Piers Jacobs then removed two percentage points and the yield did not fall.'' However, Mr Byres added, Sir Hamish could easily decide against tax decreases given the Government's financial needs for Chek Lap Kok airport and Container Terminal 9.

Price Waterhouse partner Bill McKenzie said lowering taxes would let the international community know that Hong Kong was a low tax centre and attractive place for regional headquarters.

''It won't have a dramatic effect on business incentive but given the numbers he's got to play with, [a tax cut was] not unreasonable,'' he said, adding that a one percentage point reduction would cost the Government about $2 billion.

Mr McKenzie said such a move would be a justifiable reversal of an increase that had proved unnecessary - Sir Hamish's increase in corporate profits tax by one point to 17.5 per cent in the 1992 budget.

In a pre-budget commentary, KPMG Peat Marwick senior tax partner Roddy Sage said that Sir Hamish did not believe the increase in profits tax to 17.5 per cent in 1992-93 had had an appreciable impact on local or international enthusiasm for investment in Hong Kong.

Mr Sage said although there was strong support for lower corporate tax rates, KPMG did not believe a one percentage point cut would materially influence investment in Hong Kong.

''If a reduction was envisaged, the objective should be to reduce the rate of profits tax to the standard rate of salaries tax, that is, 15 per cent,'' he wrote.

''This would cost the Government $4.5 billion, a step which the Financial Secretary is unlikely to take, although he may consider a reduction of one percentage point.'' Corporate profits tax peaked in the 1984 budget when Financial Secretary Sir John Bremridge raised it to 18.5 per cent from 16.5 per cent.

He also raised personal income tax from 15 per cent to 17 per cent, the first increase in 18 years.

Sir John's successor, Sir Piers Jacobs, subsequently moved to reduce both corporate profit and personal income taxes to 16.5 per cent and 15 per cent respectively.

Mr Sage said KPMG considered the 15 per cent personal tax rate already attractive and it should not be changed.

He said KPMG did not support an increase in tax allowances by more than the rate of inflation because it believed if people earned more in real terms they should expect to pay more tax.

Mr McKenzie estimated that corporate profits and personal taxes generated about $60 billion, 45 per cent, of the Government's general revenue account income.

Hong Kong's tourism sector is another strong advocate of lower taxes to maintain the territory's status as one of Asian's leading travel destinations.