It's time to invest in city's small businesses

Hong Kong is a place that many consider among the freest in the world. We don't tax dividends, interest or capital gains and rejected the notion of taxing goods and services.

Few incentives are offered to companies or consumers and, as a result, less money is needed to provide government services. That, in turn, helps keep taxes low, which contributes to our reputation as one of the best places to do business in the world.

Perhaps because of this, Hong Kong is home to over one million companies, which by simple mathematics tells us that the vast majority of them are very small. For these companies, cash flow and a minimum of red tape are life-and-death issues, especially when the global business environment is as tough as it has been in recent years.

We tax profits at 16.5 per cent, which in the 1990s was considered pretty low. When other governments were quick to charge 30 per cent or more, we looked good. But times have changed, and so must we.

Our competitors have slashed taxes and offered incentives to attract business. They accomplished this by broadening their sources of revenue so as to avoid big deficits, and the strategy is working.

Financial Secretary John Tsang Chun-wah offered to refund part of the salaries and profits taxes paid last year, which is a welcome if temporary measure. He also mentioned a proposal by the Hong Kong General Chamber of Commerce to introduce a two-tier profits-tax regime.

Unfortunately, he continues to think that "low and simple" is the only policy necessary, and so did less than he might have to help small and medium-sized enterprises.