Hong Kong Will Abolish Death Tax

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

21 March 2005

One of the most significant measures included in this week's Hong Kong budget is the proposed abolition of estate duty. "We will introduce the relevant bill into this council for deliberation as soon as possible," said Financial Secretary Henry Tang Ying-yen.

Estate duty is estimated to bring HK$1.5 billion in revenue for 2004- 05. The government has been consulting on this step for the past year, and it is expected that legislation will be brought forward within the coming financial year.

Responses to the consultation were varied, said Mr Tang, with some contending that estate duty is a tax on the rich and helps redistribute income between the rich and the poor, but many others advocating abolition given its susceptibility to abuse and inequitable nature; and the need to help Hong Kong develop into the premier asset management centre in
the region.

Hong Kong Exchanges and Clearing belongs to the latter camp, as might be expected. Said HKEx: 'The existence of a tax on assets situated in Hong Kong acts as a deterrent to the holding of Hong Kong assets. Such tax detracts from Hong Kong's role as a centre for capital formation and a centre for the provision of financial services. It is particularly important to abolish estate duty, as argued further below, in view of Hong Kong's large and growing role as a financial centre for Mainland China.'

In fact the tax is reasonably easily avoided through the use of trusts and other tax-planning techniques, giving rise to fears in some quarters that abolition would be negative for the professional sector in Hong Kong.

But Li Man-fai, president of the Taxation Institute of Hong Kong, told the South China Morning Post that the trust industry would not be made totally redundant by the move, as estate planning advisory services are still needed. He raised the issue of whether abolition would be retrospective: "As the bill still needs to be passed, whether or not this will be retrospective is bound to lead to some public arguments," he said. "I would prefer that the date of announcement is the effective date."

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