Hong Kong Likely To Raise Income Tax Rate, Says PwC

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

15 January 2003

Just days after Hong Kong's Secretary for Commerce and Industry, Henry Tang, trumpeted the SAR's 'unconditional' 15% income tax rate during an attack on recently announced reductions in Singapore's tax rates, PricewaterhouseCoopers has predicted that Hong Kong's tax rates for companies and individuals will probably be increased by one percentage point in the new financial year (from 16%).

Commenting on the announcement that foreign companies locating in Singapore will receive a preferential tax rate of 15% rather than the usual 22%, Mr Tang said: 'This is a typical way Singapore way of doing things - it only looks good on the surface, but when you eat it, it's something different." But the Hong Kong government is up against the wall, with a ballooning deficit and tax collections cut back by its slackening economy, so something has to be done.

Proposals for that something have ranged from the introduction of a sales tax (perhaps disastrous at a time of deflation) to new taxes on savings which might encourage consumption. PwC thinks that the government will try to widen the tax base, currently restricted by a high personal allowance, as well as increasing rates.

The government's has US$40 billion in reserves, but this is starting to look puny against a predicted deficit this year of US$10 billion.

PwC echoed Chief Executive, Tung Chee-hwa's suggestion that the tax base should also be extended outwards to include Hong Kong companies generating their turnover in the Pearl River Delta - but pointed out that the current, territorial system of taxation would not allow this.

Financial Secretary, Antony Leung Kam-chung was attacked for targeting the middle classes for increased taxation in a speech last week, but Mr Tung said again at the weekend that taxes would be going up.

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