Downturn set to eat into tax revenue for a third straight year

The government expects to reap less tax revenue for a third consecutive year in 2010-11 because of the impact of the global downturn on household incomes and corporate earnings.

The 7 per cent drop in the total tax estimated to be collected in the current financial year follows a 6 per cent drop last year and a fall of 4.6 per cent the year before, according to Inland Revenue Department data.

After the Asian financial crisis more than a decade ago, Hong Kong's total tax revenue dipped in 1998-99 as well as in 1999-2000 before rebounding.

In 2010-11, salary tax is projected to slip 3 per cent year on year to HK$39.81 billion, with property tax down 11 per cent to HK$1.5 billion and a 29 per cent decline in stamp duty revenue to HK$30 billion.

The relatively conservative estimates follow robust growth last year that saw the government collect one-third more in stamp duty and double the amount of property tax, which Chu said reflected the active property market.

Inland Revenue commissioner Chu Yam-yuen said: 'Last year, the markets were quite robust. But this is not a normal situation. In estimating this year's stamp duty collections on property transactions, we tend to be prudent in our forecasts. We don't expect the market to be like what it was last year.'

The government has collected more revenue from stamp duties than salary tax only twice since the handover - during the bull market in 2007-08 and last year. Stamp duties jumped 62 per cent for property transactions and 19 per cent for stocks last year.