Property Tax Recommendations Affect HK Stocks

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

04 March 2002

A Government Advisory Panel report published on Friday which recommended an increase in property taxes in order to help offset a ballooning budget deficit had a significant effect on property stocks in Hong Kong.

The fall in the jurisdiction's benchmark share index was prompted by fears that an increase in property taxes and the creation of a wider tax base could dent the fragile recovery in demand for HK real estate, which is a key pillar of the faltering economy.

In addition to a property tax hike, the report, which was released on Friday morning, also recommended the reduction of personal allowances granted to taxpayers during boom years which have served to further narrow the already slim tax base, the implementation of a 3% sales tax, and an investigation into the possibility of introducing land and sea departure taxes.

The SAR Government has said that it will not introduce any major new taxes while the region is poised on the brink of its second recession in four years, and even the most vociferous supporters of the sales tax proposal, such as international accountancy firm KPMG, have agreed that this should be the case. However, there have been calls for the Government to begin the long process of legislating for such a levy, and the findings of the Government panel means that these are likely to increase.

Financial Secretary Antony Leung Kam-chung also revealed last week that cuts in Government expenditure on civil servants are on the cards in his March 6 budget. According to recent reports, pay and bonuses for Hong Kong's 180,000 civil servants account for 80% of the operational budget, and an astounding 66% of total Government spending.

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