Hong Kong Government Says It Will Monitor Singapore Tax Changes

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

15 April 2002

The Hong Kong government has said that it intends to monitor the tax situation in Singapore, following announcements last week that the country intends to lower corporate and personal income taxes in order to compete for international business and investment. Analysts in the Asian region are divided as to the impact that this will have on the SAR, however.

Speaking on Friday, Hong Kong Financial Secretary Antony Leung Kam-chung reassured the jurisdiction's financial sector that even if the tax cuts are enacted in Singapore, taxation will still be higher there than in the SAR.

'Their tax system is different from ours and is more complicated. They have also recommended to increase the goods and services tax,' he explained. However, he said that the Hong Kong authorities would be keeping a close watch on developments in Singapore, and will: 'try to study how to keep the competitiveness of Hong Kong including the tax system.'

Speaking to the region's media at the end of last week, analysts and economists were divided as to the likely effects of the Singapore tax cuts. ABN Amro Asian Chief Economist, Eddie Wong, told the South China Morning Post on Friday that overseas companies targeting China are unlikely to establish in Singapore, even if the proposed tax cuts are introduced:

'One factor is obviously where they want to do business,' he explained. 'If they want to focus more on the China market, the choice would be between Hong Kong and Shanghai.'

However, some are less optimistic regarding Hong Kong's future as regional leader. Speaking to the Reuters news service on Friday, Ernst & Young partner Mike Grover warned that Singapore's tax-cutting package could whittle away at the SAR's advantage:

'Whatever lead Hong Kong had in the past is now evaporating very quickly. The corporate tax rate of 20% [in Singapore]...could be very attractive, especially when you factor in the special tax rates relating to the industries Singapore wants to attract, such as banks.'

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