Dear Valued Clients and Friends
Mr. John Tsang, the Financial Secretary of Hong Kong Special Administrative Region, has just delivered the Budget for the financial year 2012-13 today.
According to Mr. Tsang, for 2012-13, there will be a small deficit in the Consolidated Account but will largely achieve a fiscal balance. The estimated government revenue will be HK$390.3 billion. On the other hand, operating expenditure for the coming year is estimated to be HK$315 billion, which represents a 6% increase over the revised estimate for 2011-12. Recurrent expenditure will be HK$264.3 billion whereas capital expenditure will be HK$78.7 billion. Total estimated government expenditure for the coming year is forecast to be HK$393.78 bullion. The government’ fiscal reserves are estimated at $658.7 billion by the end of the following financial year, representing approximately 34% of GDP or equivalent to 20 months of government expenditure. In terms of the economic highlight, the forecast GDP growth is 1–3% and the headline inflation rate is estimated at 3.5%.
After hearing the feedback from the community and the various interested groups, Mr. Tsang proposes to introduce certain measures to help ease the pressure on the community brought about by an economic downturn. As far as tax is concerned, the measures include:
- Reduce salaries tax and tax under personal assessment for 2011–12 by 75%, subject to a ceiling of $12,000.
- Propose various tax measures: raising the basic allowance to $120,000 and married person’s allowance to $240,000; increasing the allowance for maintaining a dependent parent or grandparent aged 60 or above to $38,000; raising the child allowance to $63,000; raising the dependent brother/sister allowance to $33,000; raising the disabled dependent allowance to $66,000; extending the entitlement period for the tax reduction for home loan interest to 15 years of assessment and increasing the maximum tax deduction for mandatory contributions to Mandatory Provident Fund schemes to $15,000.
- Enhance the existing SME Financing Guarantee Scheme by increasing the maximum loan guarantee ratio to 80% for which the Government will provide a guarantee commitment of $100 billion while the guarantee fee will be lowered.
- The Hong Kong Export Credit Insurance Corporation will offer new policy terms which will include special concessions for SME policyholders who will be allowed to insure their exports only for places and buyers of their choice, and will be entitled to various premium discounts.
- Waive business registration fees for 2012–13. This proposal will cost the Government $1.9 billion.
- Reduce profits tax for 2011–12 by 75%, subject to a ceiling of $12,000.
- Halve the charges for import and export declarations and abolish capital duty levied on local companies. These measures will cost the Government $840 million a year.
In response to the community’s request for more tax deductions for business or personal spending in particular areas, Mr. Tsang said that his view is that the government must be extremely cautious when considering such proposal. He maintained that the simple and low tax regime in Hong Kong has contributed to the success over many years and there is a strong case to maintain such a tax system in Hong Kong.
He cited the fact that currently, nearly 90% of the companies do not have to pay any profits tax in Hong Kong. Accordingly, he did not see the need to introduce “group loss relief” and “loss carry-back” arrangements and tax concessions for specific sectors or enterprises because these measures may narrow Hong Kong’s tax base and restrict the source of tax revenue to a handful of enterprises, and thereby making Hong Kong tax revenue unstable. Mr. Tsang believes that the measures such as offering a one-off reduction of profits tax, waiving the business registration fees, halving the charges for import and export declarations and abolishing capital duty levied on local companies would be more useful to enterprises of different sizes in Hong Kong without compromising Hong Kong’s established tax neutrality principle or being in favour of a particular type of enterprises.
In terms of the salaries tax, Mr. Tsang said that the introduction of deductible items for various expenses of a private nature will make the tax system less flexible because individual taxpayers without the need to pay such specific expenses will not benefit from the related deductions in the first place. To address the financial burden of the middle class, Mr. Tsang feels that the proposed one-off salaries tax reduction and adjustments to various personal allowances or deductions would be more appropriate.
It appears that the existing Government has adopted a cautious stand in formulating this Budget. Those who have been advocating for a change in the Hong Kong tax system will be disappointed after reading this Budget because the Government stand remains the same – that Hong Kong remains a low tax jurisdiction and its tax system will continue to be simple. The balanced-budget is also fair to the next Government to be elected this year too. Overall, I will give a rating of 8 out of 10 for this budget.
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd