Building confidence and vitalizing the economy with a balanced approach
- Amid uncertainties in the global economic outlook, the Financial Secretary (FS) adopted a balanced approach in the budget to relieve people's hardship while simultaneously revitalizing the economy.
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To boost, grow and diversify the economy and the economic structure of Hong Kong, a raft of different tax and non-tax initiatives were detailed in the budget. The aim of the initiatives includes enhancing the liquidity and competitiveness of the Hong Kong stock market, further developing Hong Kong as an international innovation and technology center, and supporting its high-ended manufacturing and green technology industries.
As widely expected, in a bid to instil confidence and stabilize the sluggish property market, the FS announced that all the decade-old cooling measures aimed at curbing speculation will be scrapped with immediate effect.
Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “We support the Government’s timely adjustments to the demand-side management measures in the property market. These include the removal of the Special Stamp Duty, Buyer’s Stamp Duty and New Residential Stamp Duty for residential properties, as well as the adjustment of the upper limit of loan-to-value for residential properties. These measures will foster favorable conditions for economic recovery. It would be imperative for the Government to continue to closely monitor its expenditure and promote consumption and investment, in order to turnaround the deficit positions in recent years and stabilize Hong Kong’s fiscal future.”
EY also notes the Government’s effort to increase revenue. The FS proposed to introduce a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the 2024-25. Under this proposal, while the first HK$5 million of assessable income will be taxed at 15%, the excess will be taxed at 16%. In addition, the FS will reintroduce the Hotel Accommodation tax at 3% starting from 1 January 2025. Other proposed revenue raising measures included adjusting fees based on “affordable users pay” principle and increasing rates at a progressive scale for domestic tenements with a rateable value of HK$550,000 or above effective from the first quarter of 2025.
Paul Ho, Financial Services Tax Leader for Hong Kong at Ernst & Young Tax Services Limited, says: “Given the current economic environment, it is reasonable for the Government to consider more moderate measures to increase public revenue, including the two-tiered standard rates regime for salaries tax and tax under personal assessment and implementing the progressive rating system for domestic properties. The proposed introduction of global minimum tax and Hong Kong Minimum Top-up Tax (HKMTT) under the scope of BEPS 2.0 Pillar Two would provide the Government with new revenue streams in the long term to improve fiscal balance.”
The FS has also committed measures to strengthen Hong Kong as an international asset and wealth management center and to attract investment, such as reviews of current tax concessions and introduction of new tax incentives.
Ho further adds: “It is encouraging to see that the Government is responding to the industry by looking into how best to further enhance the preferential tax regimes for funds, single-family offices and carried interest, notably reviewing the scope of the tax concession regimes, increasing the types of qualifying transactions and enhancing flexibility in handling incidental transactions. We are confident that these enhancements would further enhance our competitiveness as an international asset and wealth management hub.”
Hong Kong would also introduce a bill to provide a patent box tax incentive in the first half of this year to reduce the tax rate for qualifying profits derived from patents from the existing 16.5% to 5%.
EY welcomes the FS’s proposal to grant tax deduction for reinstatement expenses for leased premises and to remove the time limit for claiming tax depreciation allowances for commercial and industrial buildings. These measures would be beneficial to many corporate taxpayers in terms of reducing their profits tax burden.
This could be regarded as a more down-to-earth budget focusing on dispelling some of the negative sentiments that some have expressed about the economic outlook of Hong Kong as an international trading and financial center. We hope this budget can instil confidence in people, allowing Hong Kong to seize opportunities and achieve high-quality development.