In a document recently submitted to Financial Secretary Donald Tsang Kam-yuen, the Hong Kong Society of Accountants (HKSA) calls for more tax breaks to maintain the SAR's status as a major international finance and business centre.
The document, entitled "Meeting the Challenges of Globalisation," contained a raft of 49 proposals and will be considered by the Financial Secretary in his 2001 Budget deliberations. The proposals cover a wide range of issues including tourism, unemployment, poverty and the environment.
The crux of the HKSA message is that the combination of globalisation, China's entry into the World Trade Organisation and the emergence of e-commerce has presented Hong Kong with the need to adapt and meet new challenges via an adjustment of the taxation system.
The Association's Taxation Committee chairman Tim Lui Tim-Leung stated: 'There is a growing tendency for standards and practices in different parts of the world to converge, and for barriers and borders to be broken down. The success with which the SAR deals with the impact of globalisation will determine whether it continues to be a major force or becomes a mere "bit player" on the world stage.'
The HKSA tax proposals involve incentives to attract regional headquarters to Hong Kong including a tax exemption on profit for management and consultancy income from associated entities overseas. Deductions for interest incurred on money borrowed from overseas associates for the production of assessable profits is also recommended.
Mr Lui explained that the HKSA was influenced by the success story of Singapore: 'We had in mind what Singapore has done to attract business to Singapore through tax incentives. We see the necessity for the government to do something to attract business to Hong Kong. The tax system could play a part in attracting businesses,' he said.
HKSA Budget Proposals Subcommittee convenor Yvonne Law Sing Mo-han said the Association recommended tax breaks on the financial services industry among other sectors: 'Hong Kong should take advantage of WTO. That is where competition comes into play. Hong Kong should be kept in a competitive position.'
The HKSA also calls for the creation of a WTO Resources Centre with 'generous tax write-offs' to provide information, courses and to network with the WTO.
Further proposals include include an expenses deduction for businesses which offer an e-commerce training programme for their employees. The HKSA says an "outright deduction"' should be afforded for firms wishing to develop an Internet presence with a 50 per cent profit tax exemption for e-businesses wishing to encourage foreign businesses to use Hong Kong as an incubator base for Internet trading activities.
The Association states that it supports the government's initiative to review the tax regime but has reservations on proposals of a PAYE system. Mr Lui said that the HKSA 'would like to keep the tax system as simple as possible. There might not be good enough reasons to complicate the system. It needs more work.'
In conclusion Mr Lui said the HKSA did not anticipate that Mr Tsang would welcome all the Association's recommendations with open arms but he commented: 'If he takes on half of our suggestions, it would be very impressive. We are simply giving him options to consider. That is why we are spreading our net very wide.'
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