Accounting firm urges city to cut profit tax rate to attract more investors

Symbolic reduction would convey city's intention to actively court more foreign investors, say executives from Deloitte

PUBLISHED : Tuesday, 11 November, 2014, 4:49am
UPDATED : Tuesday, 11 November, 2014, 9:32am

The city should cut its corporate tax, or at least the rate imposed on the first HK$2 million profit recorded by a business, in order to increase its competitiveness and attract more foreign investment, accounting firm Deloitte says.

Deloitte also predicted the government would post a HK$27.3 billion surplus in the financial period from April 1 this year to March 31 next year.

The firm was responding to a public consultation on the chief executive's upcoming policy address and the financial secretary's next budget, due to be delivered early next year.

Hong Kong's profit tax rate is 16.5 per cent. Lowering it by half a percentage point could send a symbolic message that the city was taking steps to attract foreign investors, Deloitte's China vice-chairwoman Yvonne Law Shing Mo-han said yesterday.

"We are keeping ourselves competitive to the extent that is affordable," Law said.

Their proposals had no direct relation to the Occupy Central civil disobedience protests, she added.

Hong Kong held on to its ranking of seventh in the World Economic Forum's September competiveness report. Singapore, the city's major competitor in Asia, was second.

Deloitte suggested the government also consider introducing a two-tier system that taxed a company's first HK$2 million of profits at 12 per cent. Singapore has a similar two-tier taxation system.

"Neighbouring countries are lowering their profit taxes," That's the trend," said Alfred Chan, director of Deloitte's tax and business advisory service. "But in Hong Kong, there has been no adjustment in profit tax in recent years."

The firm also proposed granting more tax concessions to new foreign players in the Hong Kong market that were engaged in trading if, for example, 80 per cent of their employees were Hong Kong residents and if they spent more than HK$15 million annually.

The HK$27.3 billion surplus that Deloitte is expecting the government to record is HK$18.2 billion more than the government's own estimate.

The firm urged the government to announce adjustments to its prediction every six months so that the eventual surplus would not deviate much from its estimate.

Revenue from stamp duties would increase by some HK$8 billion in the next six months compared with the same period last year, Deloitte said.

The firm explained that the new through train scheme with Shanghai, which linked the share markets of both cities, would increase the number of stock transactions, which were subject to stamp duty.