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Hong Kong Slowdown Hits Tax Receipts

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

14 November 2014


The 2013-14 Annual Report of the Inland Revenue Department showed that Hong Kong collected record taxes of HKD243.5bn (USD31.4bn). However, this represented an annual increase of only 0.6 percent and was largely due to a rise in salaries tax.

In fact, 2013-14 became second fiscal year in which the annual growth in revenue collections declined sharply, with the increase falling to only 1.6 percent in 2012-13, compared with the 14 percent rise seen in 2011-12.

In his introduction to the Report, Commissioner of Inland Revenue Wong Kuen-fai pointed out that there was a slowdown in Hong Kong's economy in the 2012-13 year of assessment (YA). As a result, the growth in assessable profits of business enterprises was further narrowed, and total profits tax collections fell by four percent to HKD120.9bn.

Similarly, following the introduction of various demand-side tax measures for the property market, the number of property transactions decreased significantly in 2013-14, resulting in an overall drop in the stamp duty collections from property transactions of more than three percent to HKD41.5bn.

The maximum amount that salaries tax liability may be reduced was lowered in 2012-13 from HKD12,000 to HKD10,000. This, combined with continued growth in wages and earnings, resulted in a 9.7 percent increase in tax collections to HKD55.6bn.

Profits tax still was the largest revenue source, followed by salaries tax. Together, they made up 72.4 percent of total revenue.

In a review of the tax law amendments made during the year, Wong said that, as an international financial center, Hong Kong "should not deviate from the international standard. On top of striving to enter into more comprehensive double taxation agreements (CDTA), we are committed to enhancing tax transparency."

It was noted Hong Kong passed its Phase 2 review under the Organisation for Economic Cooperation and Development's Global Forum on Transparency and Exchange of Information in November 2013. Then, in March 2014, Hong Kong signed its first TIEA with the United States.

Next, Wong discussed progress under Hong Kong's advance tax ruling system. Taxpayers in Hong Kong may apply for an advance ruling on how a provision of the Inland Revenue Ordinance applies in relation to a particular arrangement, with a fee being charged for the service on a "cost recovery" basis. The applicant is required to pay an initial application fee of HKD30,000 for a ruling concerning a profits tax case, or HKD10,000 for a ruling on any other matter.

The IRD endeavors to respond within six weeks of the date of application, provided that all relevant information is supplied with the application and further information from the applicant is not required. During 2013-14, the IRD completed the processing of 39 advance ruling applications, with most applications being for rulings on profits tax matters. Only seven applications were awaiting decision at the end of the fiscal year.

TAGS: tax | business | tax information exchange agreement (TIEA) | double tax agreement (DTA) | revenue guidance | law | corporation tax | agreements | stamp duty | Hong Kong | revenue statistics | individual income tax

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