Accountants Warn HK Government Over Sales Tax Plan

by Mary Swire, Tax-News.com, Hong Kong

15 February 2002

A leading firm of Australian accountants has warned the Hong Kong Government that the introduction of a sales tax would compromise the jurisdiction's competitiveness as a location for international business.

'The launch of a sales tax, which would collect taxes on all services and goods, would destroy the simplicity of the Hong Kong tax system,' observed Sarah Linda McGrath, Vice President and Tax Committee Chairwoman at CPA Australia's Hong Kong office, adding that this simplicity was one of the SAR's biggest draws for multinationals.

However, this leaves the Government in a bit of an economic bind, as the jurisdiction's budget deficit for the financial year to next month is estimated at HK$60 billion, and it is in desperate need of some extra revenue to breach the gap.

In contrast with the views of organisations such as the International Monetary Fund (IMF) and the Hong Kong Society of Accountants, which both saw the introduction of a sales tax as a possible solution to the region's budgetary problems, CPA Australia believes that the SAR authorities should cut spending to 20% of GDP, consider increases in direct taxation levels, and widen the tax net by decreasing personal allowances.

However, Ms McGrath cautioned against moving too soon on any of these options, warning that the already weakened economy might not be able to take the strain.

Other suggestions from the Australian accountancy organisation included the introduction of additional tax incentives in order to enhance the business environment, and a reduction in profits tax to allow fund management firms to claim tax deductions for research costs.

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