Calls Continue For Broader Tax Base In Hong Kong

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

08 January 2002

Following the Financial Secretary Antony Leung Kam-chung's gloomy budget deficit predictions, released at the start of 2002, there have been renewed calls for a widening of the Hong Kong tax base.

Although the SAR is well known for its low income tax rates - only 40% of wage earners pay income tax up to a maximum rate of 15%, and profits tax has been capped at 16% - heavy land taxes more than balance this, and with the property market in a recession-induced slump, experts fear that the government may soon find itself in a situation whereby there is a constant shortfall because of the way in which it taxes and spends.

There are also fears that although the low levels of income tax enhance the jurisdiction's attractiveness as a business centre, high property prices damage its chances of attracting international businesses. In a submission to the government last year, the Hong Kong Democratic Foundation confirmed these fears, noting that the benefit of low income taxes: 'has come at the cost of massive distortion to our economy through over-reliance on property, and higher property prices for everyone.'

Although broadening the jurisdiction's general tax base in order to decrease reliance on property taxes would mean that property values could be reduced to more competitive levels, experts believe that it is unlikely that the Tung administration will raise taxes, predicting instead that it will concentrate on spending cuts.

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