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.
The heavy reliance on a relatively small pool of individual and corporate taxpayers and the stock and property markets means the government's tax revenue is often susceptible to swings in the economic cycle.
An examination of the tax revenue collected since the handover shows profits tax ranged from HK$37.7 billion in 1999-2000 to HK$104.15 billion in 2008-09, while stamp duty was as low as about HK$7.46 billion in 2002-03 and jumped to HK$51.55 billion in 2007-08.
Despite measures to return some cash to struggling households and companies last year amid the downturn, the government managed to rake in 6 per cent more in salaries tax to more than HK$41.24 billion.
But profits tax revenue plunged more than 25 per cent to HK$76.6 billion. Property, stamp and betting duties increased, along with business registration fees, but total tax revenue in 2009-10 fell 6 per cent to HK$179.1 billion.
The government expects most sources of tax revenue to fall this year, except for a 2 per cent increase in profits tax and a 3 per cent rise in betting duties.
Last year, HK$7.89 billion in tax bills remained outstanding - HK$657 million, or 9 per cent, more than in 2008-09. Of the total, profits tax in arrears increased 6 per cent to HK$5.93 billion.
The Inland Revenue Department continued to tighten its grip on the tax regime, investigating about 1,800 cases with total understated profits of HK$12.19 billion and back taxes and penalties of HK$2.59 billion.
Chu declined to comment on the case of fung shui master Tony Chan Chun-chuen. A writ submitted to the District Court last month claimed Chan, who said he was the lover of late Chinachem chairwoman Nina Wang Kung Yu-sum, owed profits tax of HK$115.6 million for the 2005-06 financial year and HK$231.2 million for 2006-07. The tax authority is also chasing Chan for HK$661,481 for 23 separate property tax items ranging from HK$5,040 to HK$84,420 over five years from 2004 to 2009.
