Four practical ways for Hong Kong to help its business start-ups

Mike Rowse welcomes the government’s plan to give small and medium-sized enterprises a lift, but thinks the focus on profits tax reform is misguided

PUBLISHED : Sunday, 27 August, 2017, 1:01pm
UPDATED : Sunday, 27 August, 2017, 7:41pm

After a decade with the community’s main focus seemingly elsewhere, it is refreshing to have a chief executive who is inclined to be proactive in support of economic development generally and the business community in particular. The proposal by Carrie Lam Cheng Yuet-ngor to set aside HK$5 billion – in the form of foregone government revenues – to turn that support into concrete assistance is welcome.

Reform that will see HK$5 billion in tax breaks for start-ups and small businesses to go before Legislative Council in 2018

Lam has already indicated the main purpose will be to help small and medium-sized enterprises flourish. As the owner or part-owner of four SMEs, perhaps I can offer a few observations on how the resources could best be deployed.

First, I must confess to being puzzled by the proposed priority on introducing a two-tier profits tax regime, with a suggested lower rate for companies’ profits below HK$2 million. The main challenge for SMEs, particularly in the start-up phase, is in achieving profitability at all. Expenditure is being incurred and strenuous efforts are being made to secure revenue, with the result that would-be entrepreneurs can feel like gerbils on a treadmill. The basic issue is survival of the company, and little or no thought is given to the level of profits tax. Make the profit first, before worrying about whether the tax will be 10 or 20 per cent, or some figure in-between.

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One way in which expenditure could be reduced would be to lower the annual Business Registration Certificate fee to a nominal amount – say HK$20 instead of the current HK$2,000-plus for the first few years.

Similarly with the requirement to produce proper accounts and get them audited, and file necessary returns. There are a multitude of service providers who can perform these tasks relatively cheaply but, for a start-up, it all represents money out of the door with no return. Could SMEs be given a professional services allowance for the first three years to help meet these costs? Some support on IT and basic office systems could be included.

Business accommodation rental is another huge concern for SMEs. Many professionals keep costs to a minimum at the outset by working from home. But this is not always a feasible option. Some help is available, especially for hi-tech companies, but could the scope be expanded? Could the government bulk-lease office and workshop space and let it out to SMEs at peppercorn rents for the first few years of operation?

Finally there is the issue of staffing. The owners/operators expect to work for nothing in the start-up phase. Their financial rewards will come later. They support themselves with their savings, or family funding, or even part-time work for others.

Is it our objective to raise a generation of wage slaves ... Or do we want to unleash the creativity of our young people?

Could they be given some administrative support in the early days? A school leaver looking for a first job, perhaps – not necessarily on a full-time basis – who could answer the phone and do some simple bookkeeping.

A comprehensive support package along these lines could be provided for less than HK$20,000 per month per enterprise, so HK$5 billion could carry 20,000 companies for a year. We would have to accept that many would fail: the mortality rate of new enterprises is estimated at 90 per cent. But the profits of those who survive and flourish would more than compensate for the losses.

Perhaps more important, such a scheme would address the fundamental question of what sort of economy and society Hong Kong wants to be. Is it our objective to raise a generation of wage slaves, content to serve their time working for others? Or do we want to unleash the creativity of our young people by giving them the chance to lift themselves up?

Tax incentives for Hong Kong SMEs will only create more jobs for government paper shufflers

Questions have been raised about whether the current generation is sufficiently entrepreneurial compared to their predecessors. There may be some basis to such a query given the loss of ambition that can accompany affluence.

But to the extent that some of the decline may be attributable to the much higher cost base, and the stranglehold oligopolists have over large swathes of the economy, then an aggressive support programme may be necessary to forge a new way forward.

Mike Rowse is the CEO of Treloar Enterprises. [email protected]