Hong Kong’s Financial Secretary Henry Tang announced in yesterday’s budget that the introduction of a sales tax is likely to be at least three years away.
As the government continues to grapple with a budget deficit that has grown to HK$50 billion, Tang used his maiden budget speech to make the case for the introduction of a GST-style indirect tax.
“Hong Kong's tax base is narrow. In the long run, we need to broaden it to secure a steady source of revenue,” he observed, adding that:
“In Hong Kong, non-tax revenue accounts for about 40 per cent of total revenue, whereas the figure for OECD economies is around 14 per cent. This shows that Hong Kong has a far heavier reliance than those economies on non-tax revenue, such as land revenue and investment income.”
He continued: “Hong Kong is the only developed economy that does not have one. GST is broad-based and equitable, and is capable of yielding a sizeable and steady revenue. Depending on any exemptions, a GST of 5 per cent would generate around $20-30 billion revenue for the Government in a full year."
“Besides, being less sensitive than direct taxes to the cyclical movement of the economy, GST can enhance the Government's ability to withstand the pressure on public finances brought about by an economic downturn.”
Tang announced that the government has established an internal committee that will conduct a detailed survey into the implementation of a sales tax in the territory, which will draw upon the experiences of other nations. The committee is expected to report to the Financial Secretary by the end of 2004. “After that, I will announce what will be done next. We are likely to need at least three years to implement GST.”
“I hope that various sectors of the community will hold a rational debate on this important subject and seek to reach consensus,” he concluded.
In order to sustain the city’s economic recovery, Tang announced no other changes to Hong Kong’s tax rates.
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