IMF Urges Hong Kong To Broaden Tax Base
The International Monetary Fund in its annual report on the Hong Kong economy
has urged the government to broaden the tax base and introduce a general sales
tax at the earliest opportunity. While a healthy economic recovery has helped swell the government's coffers
and bring the budget into a projected balance in 2005, more than half of the
working population of the Special Administrative Region falls outside of the
tax net. Moreover, a substantial portion of Hong Kong's non-tax revenues accrue
from land sales and investment income, sources which are subject to a high degree
of volatility. "There remains a need to broaden the tax base to help stabilize revenue,"
the IMF stated in its preliminary report. The report added that: "We welcome the government's intentions to begin public consultations
on the feasibility of introducing a low-rate GST." "We consider this an important tax reform and would encourage its implementation
with few or no exemptions to prevent leakages and misuse. Given the long lead
time required for its implementation, an early start would be useful." The IMF also cautioned against the giving of further tax concessions, warning
that such a move could undermine further the territory's narrow tax base and
increase its reliance on unstable non-tax revenues. The preliminary conclusions of the IMF mission regarding the Hong Kong economy can be found in the Tax News Resources section.
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