Hong Kong Has No Need For A Sales Tax, Say Experts

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

07 December 2004

Hong Kong’s improving government finances will make it increasingly difficult for the SAR’s government to sell the idea of a new sales tax, according to accounting firm PricewaterhouseCoopers.

While the government is forecasting a budget deficit of HK$42.6 billion (US$5.48 billion) for the 2004/2005 fiscal year, many observers and analysts have predicted that the actual figure will come in much lower, due to a sharp rebound in the economy and additional revenues raised this year from land auctions and other sources.

In a Dow Jones Newswires report, PwC tax partner Guy Ellis suggested that the government finances could actually be in surplus by March 2005 to the tune of around $HK10 billion.

"If you look at the numbers on a month by month basis, this is the way they are heading. This headline number is clearly going to cause a lot of confusion," he stated.

Tim Lui, also a tax partner at PricewaterhouseCoopers, expressed his belief that Financial Secretary Henry Tang is being lured into arguing for the tax because it could bring in as much as HK$30 billion in additional revenue, despite the predicted surplus potentially making this unnecessary. However, he went on to note that:

"At the moment, people are up in arms against the GST.”

He added that opposition to other levies, such as a capital gains tax would also meet with determined opposition.

"He knows jolly well those won't fly," observed Lui.

However, in a speech to Hong Kong business leaders at the Chamber of Commerce last month, Tang set out his tax policy stall by dismissing the possibility of tax cuts, and arguing for a widening of the territory’s tax base.

"It is precisely when an economy is on an upswing that we can afford to think about tax reform, particularly in broadening our narrow tax base, he argued.

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