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Hong Kong Accountants Propose Temporary Tax Surcharge

by Mary Swire,, Hong Kong

12 December 2002

In its 2003 budget proposals, submitted to Financial Secretary, Antony Leung Kam-chung on Tuesday, the Hong Kong Society of Accountants proposed, amongst other measures, a 17% reduction in personal income tax allowances and the introduction of a surcharge for profits, salaries and property tax payers for two years, at a rate of 10% based on their actual tax liability.

Entitled 'Balancing the Equation - Achieving Fiscal Equilibrium and a Fairer Society,' the HKSA's budget submission observed that:

'Whilst the Hong Kong taxation system is relatively competitive vis-a-vis those of other jurisdictions, there is no room for complacency. Given that some of the neighbouring jurisdictions have been lowering their tax rates in recent years, a review of the taxation system in Hong Kong...should be carried out with a view to enhancing the competitiveness of Hong Kong as an international financial and business centre.'

Speaking with regard to reducing the country's budget deficit - which the HKSA predicts will reach HK$65-70 billion this financial year - the accounting body flagged up a personal allowance reduction and the temporary surcharge as potentially the most effective ways to tackle the situation. It suggested that the measures would raise HK$4-5 billion and HK$7.4 billion respectively, if put into practise.

However, speaking to the Hong Kong Standard this week, chairman of the society's taxation committee, Tim Lui stressed that the surcharge should last no more than two years, lest the jurisdiction lose its tax-friendly reputation.

'A long-term increase would give overseas investors the perception that Hong Kong is running against the international trend in increasing its profit tax levels. This would hamper investor confidence and the image of Hong Kong,' he told the newspaper, adding:

'If the economy is then turned around, the government could accordingly review its circumstances or remove the surcharge.'

In the long-term, the HKSA also recommended the introduction of a goods and services tax, or some other form of consumption tax, and an increase in the resources and efforts directed towards conducting tax investigations and audits.

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