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Hong Kong Tax Cuts Aimed At Middle Class

by Mary Swire,, Hong Kong

16 March 2007

The 2007-08 Hong Kong Budget aims to return some wealth to the middle class, who bore the brunt of tax increases during harder times, according to Principal Assistant Secretary for Financial Services and the Treasury Kenneth Cheng.

Cheng told that in the last few years, when Hong Kong had financial challenges and the Government's fiscal situation was tight, the middle class was the most taxed.

Noting the revenue surge was mostly brought by those tax increases, Cheng said the 2007-08 Budget has proposed a series of tax relief measures to share wealth with the community, in particular those who paid the most during that difficult time.

From 2007-08, the marginal tax rates and tax bands will be reverted to the 2002-03 levels. A waiving of 50% of the 2006-07 salaries tax or tax charged under personal assessment will be offered, subject to a HK$15,000 (US$1,920) ceiling per assessment.

The child allowance will be raised to HK$50,000 from HK$40,000 for each child, with the introduction of an additional HK$50,000 allowance for each child born during the year. In other words, the total child allowance for a new-born child will be HK$100,000 in the year of birth.

Cheng said among the 1.35 million taxpayers in 2006-07, 40% or 549,000 had an annual income of HK$200,000 to HK$400,000. Their tax bills due in January next year will be reduced 70% on average, depending on their family profile.

"For a single taxpayer who does not have child or new-born child allowance, if their monthly salary income in 2006-07 is HK$30,000 and the amount of provisional tax paid is the same as the amount of final tax liability for 2006-07, the tax bill due in January 2008 will be 52% less, from HK$38,900 to HK$18,700 after the Budget proposals," he stated.

"For a married taxpayer with a child and earned $30,000 a month in 2006-07, the tax bill due in January 2008 will cut 83% to HK$2,050, from HK$12,300. If they have two children, the final tax for 2006-07, before the tax concessions, is HK$5,300. After these concessions, their tax bill due in January 2008 will be HK$0 and will have a HK$200-refund for the excess tax paid," Cheng added.

He noted that with the introduction of new-born child allowance, a married taxpayer earning HK$30,000 a month will get a HK$3,700-refund for the excess tax paid if they have a newborn in 2007-08. If it is a triplet birth, the refund for the excess tax paid will reach HK$9,950.

Cheng pointed out taxpayers earning HK$200,000 to HK$400,000 a year contributed 13.6% of the salaries tax assessed. After the proposed tax concessions are implemented, the figure will be lowered to 12.2%.

Among taxpayers in this income group, 73% are assessed as singles with no child, or married with child allowance claimed by the other spouse, 17% with one child allowance, 9% with two, less than 1% with three and 300 people with four or more.

As previously stated, the 2007-08 Budget proposed to waive 50% of salaries tax and tax under personal assessment assessed for 2006-07, subject to a ceiling of HK$15,000. This one-off rebate will benefit all 1.35 million taxpayers, with more than one million paying only half of their 2006-07 final tax. The rest will have HK$15,000 waived in their tax bills for 2006-07. The concession will cost the Government some HK$8.1 billion in 2007-08.

Cheng said that unlike the tax rebate exercises in 1999 and 2003, the measure proposed this year will be reducing the amount payable in the tax bill, instead of making refunds of tax previously paid.

Taxpayers will, as usual, file their tax returns for 2006-07 in May. Upon legislative amendments, the Inland Revenue Department will effect the waiver in the final assessment for 2006-07. Salaries tax bills with the waiver will be issued from late July. The tax will normally fall due in January 2008.

The proposed waiver will only be applicable to the 2006-07 final tax. Taxpayers are still required to pay on time the 2006-07 provisional tax, the second installment of which will fall due from April. The provisional tax paid will, in accordance with the Inland Revenue Ordinance, be applied in payment of the final tax for 2006-07 and provisional tax for 2007-08. Excess balance, if any, will be refunded.

Regarding stamp duty on property transactions, Cheng said it is the aspiration of most middle-class families to purchase their own flats. In view of this, the Budget has proposed to reduce the rate of stamp duty on transactions of properties valued HK$1 million to HK$2 million from 0.75% to a fixed amount of HK$100, which is the same level of duty as for properties with a value at or below HK$1 million.

"Last year transactions of properties valued HK$1 million to HK$2 million accounted for 20% of the total transactions, and those at or below HK$1 million 50%. After the Budget measures, the stamp duty of 70% of the property transactions in the market is HK$100 per transaction," he added.

The move will benefit about 30,000 home buyers, and cost the Government around HK$250 million a year.

A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at and a description of the report can be seen at

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