Sales Tax Proposals Gather Momentum In Hong Kong

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

26 September 2002

Analysts in Hong Kong have once again suggested that the imposition of a sales tax may be the most effective way to boost the jurisdiction's economy.

The proposal was put forward by a government advisory panel earlier this year; in a study examining ways in which to widen the SAR's tax base, the committee suggested the imposition of a 3% government sales tax (GST), arguing that:

'The Advisory Committee's opinion is that a GST is the only new tax with the long-term capacity to broaden the tax base which is not incompatible with Hong Kong's external competitiveness.'

Although experts predicted at the time that a 3% GST could bring in an extra HK$18 billion per year, with the economic situation so fragile the proposal was dismissed, at least temporarily.

However, with the budget deficit ballooning, and the continuing decline of the territory's property development sector - previously a major source of government income - many believe that once the economy recovers sufficiently to be able to withstand it, a sales tax may be the only viable option.

Speaking to Reuters on Wednesday, CSFB chief regional economist, Dong Tao explained that:

'Pressure (for a sales tax) is clearly rising given the deficit this year and given the structural issues of the economy. But when, and how is still a political call. It is not inevitable.'

Ayesha Macpherson, tax partner at KPMG seconded this, explaining to the news service that:

'It's time to comprehensively look at our tax system. The global trend is toward indirect taxation, such as sales tax where the tax is paid by businesses but passed on to the consumer, and away from direct tax.'

Meanwhile, there was no good news for the SAR government on the property front this week, as international ratings agency, Standard & Poors warned that residential prices and grade-A office rentals are likely to face continued decline.

'Looking to 2004, I think it's really going to depend on the economy whether prices will rise. But at this stage, there's no indication of a substantial economic rebound,' corporate ratings director, John Bailey observed on Tuesday.

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