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IMF Seeks Hong Kong Sales Tax

Mary Swire,, Hong Kong

16 November 2000

The International Monetary Fund (IMF), which has said that its economic outlook for Hong Kong is "very positive", advised this week that a sales tax should be introduced to boost government coffers. In a report, the IMF praised the Hong Kong government's fiscal management, but warned that ``fiscal stresses'' existed within the economy.

The report said: 'In particular, our preliminary analysis shows that population dynamics and the imperative to upgrade skills will result in a trend rise in health and education spending over the long-term. Also, revenue growth could slow as stamp duties and property-related receipts lag behind gross domestic product (GDP) growth.'

The IMF has urged the Task Force on Review of Public Finance to consider the case for 'a low-rated, broad-based consumption tax.' Another alternative, it said, was to charge more for healthcare so as to limit rising government expenditure and to encourage more private medical insurance.

The idea of a sales tax has been bandied about in Hong Kong over the last decade. From the late 1980s it was apparent that the tax base was narrowing sharply as 60 per cent of the SAR's workforce does not pay income tax. But whenever it was raised it attracted widespread opposition. Successive governments in Hong Kong have tended to rely on a buoyant property and stock market for cash, getting revenues from land sales and stamp duty on property and share transactions.

Acting Financial Secretary Stephen Ip said he welcomed the IMF recommendations: '... there is an advisory committee looking at tax proposals. So I hope you will give the committee time to consider the issue,'' Mr Ip told retailers. But they retorted that a sales tax was not the way forward. Retail Management Association chairman Yu Pang-chun said retailers objected because the industry still had not fully recovered from the economic downturn of the last three years. Mr Yu said: 'Compared with 1997, the retail sales value is still down by 25 per cent.'


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