Hong Kong Budget Contains Few Surprises

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

07 March 2002

Hong Kong Finance Minister Antony Leung Kam-chung's first budget, announced on Monday, contained very few surprises, according to economic analysts.

Although the introduction of a goods and services sales tax had been suggested by a Government Advisory Committee, the Finance Minister steered clear of introducing any major new taxes, or lifting the rates of existing levies, arguing that the jurisdiction's economy is too fragile to withstand major changes at the moment.

Only one minor tax change- an increase in the duty on wine from 60% to 80%- was introduced in this year's budget, although the imposition of a land border crossing tax was also proposed by Mr Leung.

The Finance Minister said that the Government would be reducing expenditure by cutting the pay of civil servants, although he reassured worried Government employees that this move would need to go through the legislative process before it is implemented, and will only take place following a review.

He also introduced a number of tax and fee concessions in order to ease the jurisdiction's economic pain, including an effective reduction in property taxes, duty concessions on ultra low sulphur diesel fuel, and the freezing of the business registration fee and various other Government charges.

Although economic analysts in the region welcomed the fact the the budget contained no sudden moves in the direction of a sales tax imposition, they expressed concerns that the finance bill did not contain more revenue raising measures, especially given the alarming size of the budget deficit for this fiscal year.

Speaking to the Reuters news service, Regional Economist at Barclays Capital, Pieter van der Schaft, observed that: 'The deficit is not going to look good for 2003. There are no real revenue measures of any sort, except the wine duty, and spending is going to increase ahead of nominal GDP growth of 1%'.

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