Personal Taxes Slashed As Part Of HK's '09 Budget

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

27 February 2009

Hong Kong's Finance Secretary John Tsang has unveiled the region's 2009-2010 Budget, revealing plans to tackle the economic crisis with personal tax cuts and greater funding for technology-based, creative and green developments.

The Budget - which is the second to be unveiled by Mr Tsang - aims to tackle immediate and longer term challenges by creating jobs, improving the environment, fostering economic development and building a caring community in what Tsang describes as a "a multi-pronged strategy to combat the fallout of the global financial crisis."

Mr Tsang said he had been guided by three principles in preparing this year's Budget: creating jobs and supporting employment, increasing overall competitiveness, and facilitating a return to economic growth.

"Being a small, open economy, Hong Kong will inevitably be hit by the turmoil and our economy will slide into recession", Tsang told lawmakers, adding:

"In this Budget, we have announced initiatives that will create about 62,000 jobs and internship opportunities."

"We will invest heavily to foster a caring society. We will introduce measures to sustain economic development and maintain our economic vibrancy."

Personal Tax Cut

As part of his plan to increase economic growth, Tsang proposed a one-off tax reduction of 50% of salary tax, and tax under personal assessment for 2008-09, subject to a ceiling of HKD6,000 (USD774).

Tsang said the reduction will be reflected in the taxpayer's final tax payable for 2008-09, benefiting all 1.4 million taxpayers and costing the government HKD4.1bn (USD529m).

Tsang also proposed to:

• Waive rates (property taxes) for the first two quarters of 2009-10, subject to a ceiling of HKD1,500 (USD193) per quarter for each rateable tenement;
• Introduce a 20% rental reduction for most government properties and short-term tenancies of government land for three months which will benefit more than 17,000 tenants; and
• Extend the freeze on government fees and charges related to people's livelihood until March 31, 2010.

Government Bond Programme

Continuing his program of proposals, Mr Tsang said that promoting the development of the bond market is important to reinforcing Hong Kong's position as an international financial centre.

The proposed programme will promote the further development of the bond market and provide more choices to both institutional and individual investors.

"The sums raised will be credited to a fund to be established under the Public Finance Ordinance. The fund will not be treated as part of the fiscal reserves and will be managed separately", he said.

Tsang also plans to submit to the Legislative Council in 2009-10 a proposal to create a level playing field for Islamic financial products vis-a-vis conventional ones. The proposal will include making changes to or clarifications of the arrangements for stamp duty, profits tax and property tax.

Technology-Based Economy

According to Tsang, the Government will promote the development of new technologies to enhance Hong Kong's competitiveness through the provision of infrastructure, manpower training, co-operation with the Mainland and other economies and funding schemes.

It will also admit more solar energy photovoltaic research institutes to Hong Kong Science Park.

Creative Economy

A dedicated office to co-ordinate work on the development of a creative economy and give more effective support to creative industries will be formed by mid-year by integrating Government resources.

Funding of HKD300m (USD39m) will be earmarked for the development of creative industries in the coming three years.

The government will promote the use of design and nurture more local talent to drive the development of the design industry, incorporate the elements of design and creativity into education, promote the development of the local film industry through the Film Development Council's efforts to expand markets for Hong Kong films in the Mainland and Southeast Asia, and provide financial support to further incubate more digital entertainment companies.

Education Crucial

Education will continue to be the government's largest spending area, with HKD61.7bn (USD7.9bn) to be spent on education in 2009-10. This includes about HKD7.5bn (USD967m) to support the implementation of the new senior secondary academic structure to be introduced in September.

Another HKD140m (USD18m) has been earmarked to help fresh graduates entering the job market this summer through a new internship programme, and HKD1.1bn (USD142m) to provide jobs.

A Greener, Healthier Hong Kong

Lastly, Mr Tsang focused on proposals relating to the region's environment and healthcare services, highlighting in particular the potential benefits of promoting electric vehicles as both a business opportunity and an environmental initiative for the city.

"The door is opening to wider use of such vehicles, which are more energy efficient and emit no exhaust gas", he said. His Budget extends the exemption for first registration tax on electric vehicles for five years, up to March 31, 2014.

On healthcare, the Financial Secretary announced that the Hospital Authority's recurrent subvention would rise by about HKD870m (USD112m) a year for the next three years.

Mr Tsang said that for the sake of public health, tobacco duties would be increased from around HKD0.8 (USD0.1) to HKD1.2 (USD0.2) per cigarette with immediate effect.

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