Chan said that additional revenue could be created only by making the “economic pie” bigger and enabling more robust and diversified growth.

“We have to take Hong Kong’s actual situation into account and avoid taking any hasty actions that may affect local economic recovery and people’s livelihood,” he said.

The government recorded a HK$101.6 billion budget deficit for the financial year ending in March, almost doubling a forecast made last year. The government was also projected to record a HK$48.1 billion deficit in the coming financial year, even with a HK$120 billion bond issuance.

Based on the “affordable users pay” principle, the government proposed the implementation of a two-tiered standard rates regime for salaries tax and tax under personal assessment.

Under the new measure, the first HK$5 million of annual net income would be charged at the standard rate of 15 per cent, and anything over that amount will be subject to the standard rate of 16 per cent.

About 12,000 taxpayers, or 0.6 per cent of those being taxed, would be affected by the new arrangement, expected to bring in an additional HK$910 million a year.

Salaries tax at present follows a progressive system, starting at 2 per cent and ending at 17 per cent after deductions and allowances, or at a standard rate of 15 per cent on net income. Taxpayers are charged whichever is lower.

A government source said a taxpayer who had two children, who could claim the child allowance, would need to earn at least HK$5.7 million a year before being charged the 16 per cent standard tax rate.

Hong Kong’s new top tax rate would still be lower than that of other developed countries, such as Japan at 55.9 per cent, Canada at 53 per cent, Australia and the United Kingdom at 45 per cent, the United States at 37 per cent and Singapore at 24 per cent, the source added.

Hong Kong budget sparks buzz over property purchases and just who will pay more taxes

A progressive rating system for domestic properties, which will affect flats and houses with rateable value over HK$550,000, would also be introduced in the fourth quarter of 2024-25.

Affecting about 1.9 per cent of the properties, the new system will increase the government revenue by about HK$840 million. The rate for domestic properties at present is set at 5 per cent of all rateable values.

A hotel accommodation tax, which was waived by the government in July 2008, will also be reinstated in January next year.

The 3 per cent tax on accommodation charges paid by guests is projected to generate HK$1.1 billion each year.

Chan said the revived tax was estimated to account for less than 1 per cent of spending by overnight visitors in Hong Kong.

“It is very affordable. But it will give us, the government, over HK$1 billion in income. So, I think it is the right move,” Chan said at a press conference after his budget address.

The tobacco tax was also raised for the second year in a row. The duty was increased by 80 HK cents a stick with immediate effect, meaning an increase of about 32 per cent. Smokers now will need to pay an extra HK$16 for a pack of 20 cigarettes, pushing the total price to about HK$94.

Duties on other tobacco products will also be raised by the same proportion.

The proportion of duty in the retail price of cigarettes was raised from 64 per cent to about 70 per cent, but the figure is still below the 75 per cent recommended by the World Health Organization.

While increasing the tobacco tax was mainly meant to reduce smoking, the move is projected to boost government revenue by HK$1.24 billion each year.

The finance chief wrote on his official blog in January that some public service charges had not been adjusted for a long time and said it might be time for a review.

“The government will review various fees and charges in a timely manner,” Chan said in his budget speech. “The affordability of the general public and businesses will also be taken into account.”

Tax hike for top earners, hotel levy revived in Hong Kong budget

Business registration fees, which were last adjusted in 1994, would be increased by HK$200 to HK$2,200 each year, starting from April, generating an extra HK$295 million in revenue annually.

But Simon Lee Siu-po, an honorary fellow at the Asia-Pacific Institute of Business at the Chinese University of Hong Kong, said he was unconvinced how the tax hikes and rates increases could significantly ease the government’s financial burden.

He estimated the measures would only contribute a few billion dollars to the coffers.

“It looks quite symbolic to me. I don’t think it solves the problem,” Lee said. “The government could do more.”

He also questioned the effectiveness of the hotel accommodation tax, saying that since the city had been recording fewer overnight tourists after reopening its borders following the Covid-19 pandemic, targeting the group would bring little economic benefit.

Terence Chong Tai-leung, executive director of Chinese University’s Lau Chor Tak Institute of Global Economics and Finance, said the government should target a wider base with the tax hikes.

“There should be more people [included] with everyone paying a little bit more,” he said. “For the small proportion of the rich, they wouldn’t pay that much more, and they have ways to avoid tax.”

Additional reporting by Jess Ma and Harvey Kong