Hong Kong To Lauch GST Consultation

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

11 July 2006

Hong Kong's government has announced that it will soon release details of the much debated Goods and Services Tax for a nine month public consultation.

Speaking on RTHK's morning talk show, Dialogues with Secretaries, , Financial Secretary Henry Tang revealed that the government is planning to submit the consultation paper to lawmakers in the coming week.

Noting that Hong Kong's limited tax base is a persistent problem, he observed that now is a good time to launch a comprehensive and in-depth discussion of a goods and services tax.

While a healthy economic recovery has helped swell the government's coffers, more than half of the working population of the Special Administrative Region falls outside of the tax net. Moreover, a substantial portion of Hong Kong's non-tax revenues accrue from land sales and investment income, sources which are subject to a high degree of volatility.

With the territory enjoying solid economic growth, falling unemployment and relatively tame inflation, Mr Tang stated that the time is right to think about introducing a new tax to enlarge the source of government revenue and stabilise public finances.

Mr Tang said the consultation paper will propose exemptions to reduce the effect of any new tax and provide tax relief for taxpayers, and some relief measures for the low-income group people.

The government is studying how similar systems work in territories such as Australia, Singapore and Europe.

Mr Tang argued that the goods and services tax is more efficient than other taxes, such as salaries tax, because it is less vulnerable to economic downturns, and suggested that Hong Kong needs a stable tax source to better plan for future education, welfare, medical and infrastructure spending.

Like many jurisdictions, Hong Kong is also grappling with the problem of an ageing society which will soon begin to stretch the government's resources. The introduction of the goods and services tax would offer greater financial security, Tang reiterated.

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