Goods and services tax idea flawed
I refer to your editorial (“Time for rational debate on taxes”, March 2) noting the pressing importance of implementing fiscal reforms in Hong Kong with a view to broadening the tax base and matching projected future increases in government expenditure.
It is most frequently mentioned that the introduction of an indirect goods and services tax is the most effective means by which to broaden the tax base. As a tax practitioner with experience in European jurisdictions, I disagree with that view. Such a tax is fundamentally regressive and weighs most heavily on the most vulnerable sectors of society.
Consider the number of Hong Kong residents, often of modest means, who go to restaurants for most of their meals and who would thereby be faced with a significant increase in their daily expenditure, exacerbating already worrying levels of income inequality.
Also, it would be a difficult tax to administer; Hong Kong’s only substantial exposure to indirect tax has historically been excise duty.
A viable alternative may be the introduction of a capital gains tax on residential property held by non-Hong Kong residents, including companies residing outside Hong Kong.
The advantage of that approach is that taxation would be fundamentally progressive and ensure that those from outside Hong Kong who come to the city and enjoy its physical security, rule of law, and civic and governmental discipline, contribute proportionately to their enjoyment of those public goods.
