No Sales Tax Yet In Hong Kong

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

17 March 2005

After months or even years of speculation about the introduction of a sales tax to broaden Hong Kong's tax base, Financial Secretary Henry Tang Ying-yen announced no major new taxes yesterday's budget.

"I believe that, as our economy has only recently begun its recovery, we should leave wealth with the people as far as possible, in order to allow greater flexibility for economic activities," he said. "With regard to revenue, I do not propose to introduce new taxes, nor raise existing ones."

Mr. Tang said he had made no final decision regarding a goods-and-services tax , or sales tax, and said the public would be involved in the decision process during a consultation process to begin later this year.

"The problems arising from our narrow tax base are abundantly clear," Mr. Tang said. "The reason for its introduction is to broaden our tax base so as to secure a steadier source of revenue."

The government expects a surplus of HK$11.95 billion for the fiscal year ending March, massively better than original projections of a HK$42.6 billion deficit. But Mr Tang said the improvement was largely due to one-time gains of HK$26 billion in bond sales and HK$31.3 billion from land premiums.

The Financial Secretary was even able to announce some new tax concessions, giving new allowances for taxpayers taking care of dependant parents or grandparents aged between 55 and 59, and an increase in the child allowance from $30,000 per child to $40,000.

Resolving a long-term spat between the government and the offshore funds industry, Mr Tang said the government also intended to exempt offshore funds from profits tax. "The government has consulted the industry on our proposals to exempt offshore funds from profits tax. We will shortly introduce the necessary legislative amendments into this council," he said.

He also said that the government was looking into abolishing estate duty. "While abolition and retention both have their pros and cons, the majority view tends to support abolition." Mr Tang said.

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