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Hong Kong May Cut Tax Rates

by Mary Swire, for LawAndTax-News.com, Hong Kong

25 January 2007


Pressure is growing on Hong Kong's Financial Secretary Henry Tang Ying-yen to announce tax cuts in next month'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 in the last few days 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 argues 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.

Hong Kong is booming partly as a result of the Mainland's stunning economic success. China grew 10.5% in 2006, and is expected to grow by 8% this year. Mainland tax revenues are also sky-high: Chinese Tax Commissioner Xie Xuren confirmed on Wednesday that the country's tax revenues jumped by 22% in 2006 to 3.7 trillion yuan (about US$480bn), due to a crackdown on tax evasion alongside booming exports and securities trading.

Mr Xie said that the growth in revenue matched growth in underlying trading volumes: securities trading was up 166%, while sales taxes in the automotive sector were up 28.5%.


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