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Hong Kong Budget Ups Tax Relief

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

26 February 2015


In his 2015-16 Annual Budget, announced on February 25, Hong Kong's Financial Secretary John C Tsang proposed a number of tax relief measures intended to preserve longer-term economic stability and provide a short-term boost.

Tsang has included both individual income and profits tax relief measures that are expected to have the fiscal stimulus effect of boosting gross domestic product (GDP) by one percent this year.

These measures include a further 75 percent reduction in salaries tax and tax under personal assessment for 2014-15, with a doubled ceiling of HKD20,000 (USD2,580). This should benefit 1.82m individuals and will reduce government revenue by HKD15.8bn.

In addition, there will also be another 75 percent reduction in profits tax for 2014-15, again with a doubled ceiling of HKD20,000. This should benefit some 130,000 taxpayers and will reduce government revenue by HKD1.9bn.

Taxpayers are being advised that they should file their profits tax and individual tax returns as usual when they are issued in the April and May 2015, respectively. Upon enactment of the relevant legislation, the Inland Revenue Department will make a reduction in the final assessment.

Other measures to help individual taxpayers include an increase in basic and additional child allowances, from HKD70,000 to HKD100,000, beginning in 2015-16; a waiver of rates (property tax) for the first two quarters of 2015-16, with a ceiling of HKD2,500 per quarter for each rateable property; and an extra allowance, equivalent to two months of the standard rate of Comprehensive Social Security Assistance, Old Age Allowance, Old Age Living Allowance, and Disability Allowance payments.

Tsang also proposed to amend the Inland Revenue Ordinance to allow, under specified conditions, interest deductions for corporate treasury centers and a 50 percent tax reduction for treasury activities, so as to attract multinational and Mainland enterprises to perform treasury services for their group companies in Hong Kong.

With regard to the tax deduction for capital expenditure incurred on the purchase of intellectual property (IP) rights, he also disclosed that he will consider extending the scope to cover more types of IP rights, with the intention of improving Hong Kong's position as a premier IP trading hub in the region.

Overall, Tsang confirmed the Government's relatively sound fiscal position in the short to medium term. A fiscal surplus of HKD63.8bn is forecast for 2014-15, with a further surplus of HKD36.8bn being budgeted for 2015-16. Hong Kong's fiscal reserves are expected to reach HKD856.3bn by the end of March 2016, representing 36.8 percent of GDP and equivalent to 23 months of government expenditure.

The revised estimate for government revenues in 2014-15 has reached HKD470.7bn, 9.4 percent higher than the original estimate. This was mainly due to over 60 percent more stamp duty being collected than the original estimate, plus 15.8 percent more in profits tax. The estimated target for government revenue in 2015-16 has been put at HKD477.6 bn.

TAGS: individuals | tax | business | fiscal policy | law | intellectual property | financial services | capital markets | gross domestic product (GDP) | budget | corporation tax | treasury management | multinationals | legislation | transfer pricing | stamp duty | Hong Kong | tax breaks | individual income tax | services | Other

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