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Hong Kong Urged To Use Extra Revenue To Cut Tax

by Mary Swire,, Hong Kong

08 January 2016

Professional services firm PwC has recommended that the Hong Kong Government could utilize its higher-than-expected budget surplus in the 2015/16 fiscal year (FY) to provide selected tax relief measures in next month's 2016/17 Budget.

PwC expects the Government to record a HKD95.5bn (USD12.3bn) consolidated budget surplus in the FY2015/16, much higher than the HKD36.8bn surplus previously forecast. It expects Hong Kong's fiscal reserves to reach HKD850.7bn by end-March 2016 – equivalent to 24 months of total Government expenditure.

It confirms that the increased surplus is primarily attributable to much higher-than-expected stamp duty revenue. As the volume and value of residential property transactions have continued to rise, PwC expects total stamp duty revenue to reach HKD77.4bn - much higher than the Government's forecast of HKD50bn.

With the increased surplus, PwC proposes, for example, that the Government could promote the development of innovation and technology by reducing profits tax from 16.5 percent to 10 percent for qualifying high-tech companies. Research and development spending that meets certain conditions could also enjoy an amount of additional tax relief.

Among other measures to maintain Hong Kong's overall competitiveness, PwC proposes the introduction of group tax loss relief. To help struggling small and medium-sized enterprises, the firm also suggests lowering profits tax to 10 percent for companies with an annual turnover under HKD5m.

PwC also recommends that salary tax bands be widened from HKD40,000 to HKD48,000, and allowances for individual taxpayers be hiked from HKD120,000 to HKD140,000.

PwC Hong Kong Tax Partner Agnes Wong pointed out that implementation of China's One Belt, One Road development strategy "will bring huge demand for machinery leases for logistics and infrastructure construction projects. PwC therefore urges the Government to relax restrictions imposed on depreciation allowances for production machinery used by Hong Kong-based enterprises outside the territory."

She also added that, "as the Chief Executive announced plans to promote aviation leasing services in his Policy Address last year, we recommend the Government implement measures such as tax reform for aircraft leases so as to seize these business opportunities."

TAGS: tax | business | fiscal policy | aviation | budget | corporation tax | China | transfer pricing | tax rates | stamp duty | Hong Kong | tax breaks | tax reform | individual income tax | services | Tax

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