Hong Kong financial chief dashes hopes for wide-ranging tax cuts for corporations
Paul Chan Mo-po says the city must protect against unforeseen market changes at a tax forum that also featured a warning about the city’s international tax compliance
There are no plans to cut Hong Kong’s corporate taxes across the board because the government needs to reserve funds to protect the city against economic fluctuation, the city’s financial chief said on Monday.
Financial Secretary Paul Chan Mo-po dashed the hopes of the business community for cuts at the government’s first summit on taxation, which brought together 400 business people, accountants and civil servants who also heard a stark warning about tax compliance from an world economic body.
Chan said that when the government considered a tax break, such a concession should be able to serve a policy objective, for example, promoting one industry.
“So long as the concession could bring benefits to the economy and the society, the government won’t mind having to forgo some tax revenue,” Chan said.
An increasingly louder segment of the business community had been calling for more tax breaks after Hong Kong’s leader, Chief Executive Carrie Lam Cheng Yuet-ngor, unveiled a tax policy in her first policy address this month that lowers profit tax rate for first HK$2 million (US$256,000) in profit to 8.25 per cent from the existing 16.5 per cent. The new policy aims to ease financial burden on small and medium companies.
In her opening remarks at the forum, Lam said she hoped the bill would be voted on by the Legislative Council this year.
She also said a simple and low tax system was not enough to keep Hong Kong competitive.
“My new fiscal philosophy is to make use of tax policy to drive the economy and enhance Hong Kong’s competitiveness, “ she said.
Hong Kong has long been considered one of the world’s top financial centres, but was in jeopardy of losing that reputation because it has been too slow to comply with international tax standards,
said Pascal Saint-Amans, the director of the tax centre for the Organisation for Economic Co-operation and Development.
“If [Hong Kong wants] to be in the first league … you need to be on time; you need to be astute; you need to be proactive,” he said. “For those of you in the business community who put pressure [on the government] and say ‘well, we can be a little late’, that’s wrong. [If] you’re late, you will damage your reputation.”
Saint-Amans said if Hong Kong wanted more tax treaties with other countries, it will have to be “a very good citizen in the international tax community”.
Hong Kong currently has 37 double-taxation agreements, which eliminate double taxation of income, with countries and territories.
Commercial sector lawmaker Jeffrey Lam Kin-fung dismissed Saint-Amans’ criticism, saying that Hong Kong was slow to implement international tax policies because it was a “matter of trust”.
“We do worry about the exchange of tax information. What we worry about is how the information is being used by the other party,” he said.
At the same forum, economist Professor Lawrence Lau Juen-yee, a former vice-chancellor of the Chinese University of Hong Kong, said Hong Kong was at a “turning point” and needed to solidify which direction the economy was headed.
He cited declines in Hong Kong’s real gross domestic product (GDP), which was 3 per cent of mainland GDP in 2016. In 1978, the rate was around 17 per cent – larger than Guangdong. Real GDP per capita of Hong Kong was almost 33 times that of the mainland in 1978 and had shrunk to 5.6 times last year.
“We cannot afford to be complacent, we need to progress,” he said. “We must think twice about our [four] traditional industries, we cannot carry on business as usual, it will not work.”
The four traditional industries are financial services, tourism, trading and logistics, and professional and producer services.
Turning Hong Kong into a comprehensive international financial centre, an international hub for innovation, developing the cultural and creative arts industry and grasping opportunities arising from the mainland’s trade and commerce strategies – the “Belt and Road Initiative” and Great Bay Area – were directions for future growth, the economist said.
“I hope Hong Kong can cooperate with Shenzhen, so that we can combine Silicon Valley and NASDAQ … and develop into an international innovation hub,” Lau said referring to the US tech hub and stock market.
Lau said that Hong Kong needed the support of the central government, which meant that “laissez-faire” policies of the government “were over”.