Tax Cuts Not On Cards For Hong Kong Budget

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

27 February 2007

Hong Kong's Financial Secretary Henry Tang Ying-yen is reportedly not planning to announce new tax relief in the upcoming budget speech, but will instead focus on increasing subsidies to help Hong Kong's more vulnerable citizens.

Citing a government source, the Standard newspaper reported yesterday that no significant tax relief is being considered for the budget, due to be delivered by Tang on Wednesday. Instead the government intends to "narrow the gap between rich and poor", with more money for the young, the elderly and the unemployed.

While Chief Secretary Donald Tsang has pledged to cut salary and profit tax by 1% to 15% if reappointed as the territory's political leader next month, such a tax cut looks unlikely to take place in the forthcoming budget, with the source telling the Standard that any income tax relief will probably come in the form of adjustments to tax bands, by resetting them to 2002/3 levels. The source added that the basic allowance of HK$100,000 is set to remain unchanged.

Pressure has been growing on Tang to announce tax cuts in tomorrow's budget speech, given an expected mammoth budget surplus of up to US$4bn.

Both the Taxation Institute of Hong Kong and a prominent HSBC economist have said that the government should cut corporate taxes, possibly by giving incentives to incoming businesses. HSBC expects the economy to grow by 5.3% this year.

The surplus for this year was originally forecast to be less than US$1bn, but robust markets will have delivered more than US$3.5bn profit from the Exchange Fund (50% more than expected), while stamp duty and income tax revenues have also performed well.

HSBC has argued for a 0.5% cut in the headline corporate tax rate of 17.5%, while the Taxation Institute suggests that incoming companies could be offered a reduced rate of 10% for a period of time.

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