IMF Encourages Hong Kong To Consider Tax Reforms

25 January 2018

The International Monetary Fund (IMF) has urged Hong Kong to consider tax reform options to boost revenues while maintaining the economy's competitiveness and flexibility.

In its annual report on Hong Kong, the IMF observed that the jurisdiction has become heavily reliant on real estate-related revenues and other volatile sources. Property transaction and recurrent real estate taxes accounted for more than 28 percent of total revenues on average during 2010-2016, up from an average of around 20 percent in the 2000s, it said.

"In fact, Hong Kong SAR relies more on tax revenue from property than other economies," the IMF noted.

The Fund said that Hong Kong also heavily relies on corporate tax revenues, with these accounting for 30 percent of revenues in 2015/16. Such revenues are "highly subject to the business cycle," it said.

The report said that Hong Kong's authorities should start studying options to diversify and increase revenue streams in a "growth friendly way."

The IMF's main recommendation was the introduction of a value-added tax or sales tax, a proposal that has been studied and rejected in the past.

It also called for more progressive taxation, with Hong Kong's top marginal rate low even in comparison to other low-tax financial centers.

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