Hong Kong Government Passes Reduced Car Tax

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

27 June 2003

A controversial tax on luxury cars was passed by the Hong Kong legislature on Wednesday, albeit in a more streamlined version which will halve the revenue that the government was originally hoping to receive from the tax.

The First Registration Tax on Motor Vehicles will be introduced on a sliding scale which will mean the first HK$150,000 value of the car will be taxed at 35%, the next HK$150,000 will be taxed at 65%, and the following HK$200,000 at 85%. Value over HK$500,000 will be taxable at 100%. The initial plan had called for much steeper rates of 35%, 75%, 105% and 150% for the respective bands.

The revised version of the registration tax is expected to raise in the region of HK$352 million, whereas the original proposals would have reaped the government's depleted coffers around HK$700 million, according to a spokeswoman for the secretary for financial services and the treasury, Frederick Ma. The secretary himself has indicated that the reductions were made to take into account the difficult business climate in the territory at present.

Financial Secretary Antony Leung first announced the measure back in March of this year, but was soon embroiled in a political scandal after it emerged he had purchased a Lexus worth HK$190,000 two months earlier. Whilst Leung has admitted a certain amount of negligence on his part, he has insisted that it was an honest oversight, and that he did not intend to time the purchase to avoid the tax. He has since donated the money saved as a result of the timely purchase (around US$25,000) to charity.

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