KPMG Calls For Sales Tax Introduction

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

01 March 2002

In the run-up to the release of the Hong Kong budget, international accountancy firm KPMG has called for the Government to seriously consider the introduction of a sales tax on goods and services, arguing that the expenditure reduction posited by Financial Secretary Antony Leung-Kam-chung earlier this week will not be enough to dig the Government out of its current economic hole.

'The Government should do something about expenditure...but it is not enough,' Senior Tax Partner Roddy Sage told the South China Morning Post on Wednesday. 'It [the Government] has got to generate more revenue, substantial revenue. We think the Government will go for a consumption tax.'

The accounting firm is not alone in its belief that the jurisdiction needs to broaden its tax base - which is at present primarily reliant on slumping property and land taxes - in order to cut the budget deficit, which is now thought to be structural rather than cyclical in nature. Hong Kong Treasury Secretary Denise Yue Chung-yee revealed last week that the SAR's estimated budget deficit for this year will be around HK$66 billion.

KPMG has predicted that the introduction of a sales tax of 3% on goods and services would bring in around HK$18 billion in additional revenue, and would not significantly affect the jurisdiction's international competitiveness, as the rate would still be low compared to the majority of developed countries.

The accounting firm supported the Financial Secretary's assertion that now, in the middle of a severe economic downturn, is not the time to make any sudden or drastic moves towards tax reform. However, it urged the Government to consider introducing legislation on a sales tax, observing that the process could take up to three years to complete.

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