Hong Kong is a pluralistic society of various aspirations. It is prevalent to hear the calling for returning the wealth to the people by making tax concessions or giving out money in a bid to improve people’s livelihood and support the disadvantaged and the poor. However, I can hardly agree on these viewpoints and proposals. On the contrary, promoting economic development, in my opinion, is the most effective way of enabling people to be self-reliant and secure more quality living. The timely and comprehensive array of measures combating poverty and alleviating plight of the poor and the deprived rolled out by the current term of Government has vigorously complemented and supplemented the current safety net in our social security system. Instead, more should be done to alleviate the heavy burden shouldered by the middle class.
Hong Kong has been facing strong competitions from neighboring countries and cities in recent years which have launched different tax incentives and inductive measures to attract foreign investors, spur economies and fuel exports. It is high time for Hong Kong to stay vigilant of being marginalized and strive persistently to bolster the economy. Most important of all, we must uphold and enhance the city’s unique edge of our simple and low tax regime, a precious asset that makes Hong Kong thrive and flourish.
Our SAR Government, blessed with an enormous fiscal reserves and accumulated surplus of the Exchange Fund (EF), should use these strong financial resources in a prudent yet flexible manner. Concessionary tax measures should be introduced to induce foreign investment and boost the Hong Kong economy.
Providing Incentives for Industries’ Growth
To bolster our economic development more effectively the HKSAR Government should provide more strategic policy and resource support and introduce financial and tax incentives to facilitate industries of development potentials that meet the needs of certain targeted industries. It is pressing to further diversify economic development and have economic restructuring to resolve the prolonged problems of slanting economic development and the lack of social mobility. The Government should take the lead to promote high value-added and instil dynamism into our industries. Vigorous and dedicated efforts should be made to fuel the growth of knowledge-based industries such as R&D, IT and creative industries to create more job opportunities and upward mobility for our younger generation. Supportive government policies and funding are essential for the SMEs to compete and survive the increasingly tough business environment.
However, public money, public resources and tax concessions for business should be offered in a cautious and rational way. The Government should stay impartial and not slanting towards a particular industry, a particular sector or an individual conglomerate.Businesses and enterprises should be encouraged to fulfil their corporate social responsibility by proactive government policies of promoting their awareness to nurture our young people. This can, thus, help benefiting the community and fostering social harmony.
Rethink over Narrow Tax Base
Not surprisingly, Hong Kong has been criticized for its narrow tax base. Government revenue from time to time varies with drastic ups and downs, just like riding on a roller coaster. Majority of our public income stems from land sales and leases premium, stamp duties for shares and property transactions and EF investment returns. But these indirect income and taxes are vulnerable to economic cycles and external fluctuations. A relatively stable and direct source of public revenue comes from a small group of high-income middle class. But in case of an economic slowdown, hardly can the government coffer secure its incomes. The brilliant simple tax regime, however, cannot guarantee sustainable and stable sources of direct revenue. This, coupled with the seriously inflationary capital costs of large-scale infrastructure projects, poses tough and daunting challenges to the Government. As a long-term cure for the increasingly acute structural problem stemming from the narrow tax-base regime, the Government has been pressed to carry out a thorough revamp by widening tax base and opening new revenue sources. Hong Kong may otherwise be hampered by the unstable and shrinking public coffer but endlessly rising public expenditure by fiscal volatility shocks. In view of such time bomb threats, the Government should not be overtaken by misgivings and fears but just go full steam ahead to rethink over Hong Kong’s tax system. Any moves in the city’s overall interest, well-being and long-term development will be fully supported and endorsed by the rational Hong Kong society.
Optimizing Tax Regime to Boost Competitiveness
Thanks for possessing the colossal accumulated fiscal reserves and Exchange Fund, Hong Kong faces no pressing needs to raise tax in the short run. Any tax hikes, levies or charges will bring along negative impacts to the entire community, in particular with the middle class bearing the brunt while the grassroots and the disadvantaged being badly hit. From a macroscopic perspective, the losses will also outweigh the gains as a tax hike will undermine the competitiveness of Hong Kong.
Undeniably, an optimized tax system can make Hong Kong more competitive. Since the estate duty of Hong Kong was scrapped in 2006, Hong Kong has been transformed into the Asian asset management hub for some tycoons and affluent families. This has subsequently created many business opportunities to the financial sector. The scraping of alcohol duty on wine and beer products in 2008 has boosted the wine trade in a robust growth over the past few years. Hong Kong has been escalating the world’s largest wine auction centre for three consecutive years and Asian’s prime wine trading and distribution centre.
According to the Report on Annual Survey of Companies in Hong Kong Representing Parent Companies Located outside Hong Kong issued by the Government’s Census and Statistics Department over the past five years, the simple tax system and low tax rate has long been rated by over 70% of international companies interviewed in the survey as the top consideration for stationing their overseas headquarters in Hong Kong. In another latest issue of a leading report on global taxation assessment, Hong Kong remains the top choice for foreign companies in the region with our favorable and appealing tax regime.
However, our tax regime is triggering heated debates in society. The Government only levies three types of direct taxes as our corporate profits tax is 16.5%. As compared with other major cities in the world, the tax burden in Hong Kong is on the low side indeed.
Discussion over tax revamp should not be taken out of context by simply looking at the revenue side. We should look at the other side of the coin. As for the public expenditure, the public purse has to foot huge bills, while burgeoning spending for aging population and a huge number of poor population. There is not much room for tax reduction at the present moment but targeted and partial tax concessionary measures are desirable, feasible and worth considering.
Providing Tax Relief for Middle Class
In Hong Kong, our middle class is not only a major source of public revenue but the pillar of our society. But their grievances have been aggravating and mounting over the past decade. Despite the contribution, they are the least and the last rewarded and looked after by the Government. The rise of the bourgeoisie can be traced through history and dated back to the French Revolution. Nowadays, the middle class is rising in emerging markets of developing countries such as Turkey and Brazil. Middle class has developed, evolved and elevated as an up-surging force underpinning the stability of society as a whole. The Hong Kong Government should pay heed to aspirations of the local middle class whether tax concession should be employed to pacify the heavily-burdened group.
Short-term relief measures should go hand in hand with long-term economic strategic policies to ease their burdens. In retrospect, provisions of salary tax allowances for dependents like children, parents and grandparents were welcoming as well as the tax deduction for self-education expenses. More efforts should be taken into examining options like introducing a tax deduction for medical insurance, to alleviate the hefty tax burden of the middle class on various fronts.
As for long-term strategic planning, the Government has to actively explore more land resources and build more flats of different types to accommodate middle-different income groups for their home purchases. The Government should stay on the right track of launching measures of stabilizing soaring property prices and dampening escalating rent so that the middle class can be supported and facilitated in their first home purchase. Equally important, creating greater job security and more quality job opportunities for an upward social mobility and promoting the overall economic development are also on the top agenda of the Government.
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