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Hong Kong Drops GST

by Mary Swire, for, Hong Kong

06 December 2006

In a surprising about turn, the Hong Kong government said yesterday that it will abandon plans for a goods and services tax in the face of widespread public hostility to the idea.

“We have heard clearly a strong opposition to the GST from the public,” said Financial Secretary Henry Tang Ying-yen on Tuesday. He said that the government would still put forward ideas for widening the tax base, something that has been strongly urged on Hong Kong by the IMF and other bodies, but that they would not include the GST as an option.

Public consultation has showed that people have concerns that a GST would be inflationary, would be regressive and would discourage tourists.

In October, members of Hong Kong's Legislative Council supported a motion opposing the introduction of a Goods and Services Tax in the territory. The motion, moved by Dr Hon Yeung Sum, stated: "That this Council opposes the introduction of a Goods and Services Tax."

Commenting on the motion at the time, Financial Secretary, Henry Tang told journalists that: "We are disappointed at the outcome. Actually the biggest difference between the Government and the Hon Yeung Sum's motion is that the actual effect of the motion will suffocate further discussion on broadening the tax base and a Goods and Services Tax. I hope in this incident, that LegCo members have not misjudged public sentiment nor have they lost a valuable chance to discuss a very important subject in the community."

He continued: "Actually, there was a lot of discussion today regarding various different types of taxes. New taxes, for example capital gain tax, progressive tax or dividend tax and indeed they have raised a number of questions as well as concern about the GST. This is exactly why we should continue this discussion and we should continue to consult."

"One of the most talked-about subjects is income disparity that GST might bring. I think this is a very superficial argument and indeed it may be intentionally misguided. Because when we launched the GST debate, together we have a large basket of other compensation and measures to mitigate the effect on lower income families."

Earlier in October, Director-General of Investment Promotion, Mike Rowse, observed that: "As regards the consultation on the possibility of introducing a goods and services tax, it is worth pointing out that the cities and economies with whom we are most usually seen to be in competition all have a goods and services tax already."

"For example, at the regional headquarters, regional office level, we would be normally compared with Singapore, and sometimes to some extent with Sydney. And both cities have a GST already. For offices covering China, we compete with perhaps Beijing and Shanghai and of course, the Mainland already has a tax on goods. I think this has to be seen in that sort of perspective."

He concluded: "Given Hong Kong's many advantages favoured by foreign investors and our Government's commitment to continuously improve the business environment here, we think Hong Kong's overall competitiveness will remain strong."

In August, thousands of demonstrators took to the streets of Hong Kong to protest against the planned tax. The pro-business Liberal Party, which organised the march, claimed that as many as 10,000 people, including local businesses operators, traders and retailers took part, although a spokesperson from the police department stated that the number was closer to 3,000.

Miriam Lau, deputy chairwoman of the Liberal Party argued at the time that: "This march indicates that a GST would seriously impact trades and businesses and they are very anxious to tell the government that they do not wish it to implement it."

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