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Publications and Press Releases :
Press Release
: News Archives
Government proposes revenue neutral tax reform
to broaden Hong Kong's tax base
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The Government today (July 18) issued a consultation document outlining
proposed reforms to the current tax system in Hong Kong. Having
considered a range of options to broaden the tax base, the Government
has concluded that reform via the introduction of a Goods and Services
Tax (GST) is the preferred option for consideration.
Financial Secretary, Mr Henry Tang,
said the proposed reforms to the tax system were necessary to ensure
Hong Kong's future prosperity. "For many years we have been
overly reliant on a limited number of widely fluctuating, cyclical
sources of revenue," Mr Tang said. "The introduction of
a GST is a viable option for Hong Kong. This would secure the long-term
sustainability of our revenue base and our capacity to meet public
expenditure needs.
"I want to emphasise that
the Government has no intention of altering Hong Kong's envied position
as a low-tax environment."
However, he said the Government was
acutely conscious of the potential concerns of the community over
the introduction of a GST, particularly its impact on the economy
and on low-income households.
"In this consultation
document, we have proposed a package of tax offset and relief measures
to address these concerns. We are sharing our thoughts with the
community so that we can make the process of consultation as comprehensive
and transparent as possible. It is the Government's goal that everyone
should have the opportunity to contribute to this discussion, which
is of vital importance to Hong Kong's future development,"
he said.
Hong Kong's existing tax base is
very narrow by international standards, relying on only a limited
range of taxes and non-tax income to support our public expenditure.
Additionally, income from these sources varies widely according
to economic conditions outside the Government's control, thus greatly
constraining the Government's ability to make long-term plans and
investment decisions to sustain growth and development.
Mr Tang said, "Hong Kong needs
to respond to this challenge by identifying new sources of secure,
steady income from a broader and growing tax base. A broader tax
base would also give us room to cut our Salaries and Profits Tax
rates sustainably, thus enhancing our attractiveness to internationally
mobile talent and capital.
"Additionally, the rapid
ageing of Hong Kong's population will be accompanied by higher spending
pressures on healthcare and services for the aged. At the same time,
the higher number of senior citizens will mean fewer people in the
workforce generating Salaries Tax revenue."
Of all the options available, a low,
simple GST has been identified as the best way to broaden the tax
base. A low, single-rate GST would be:
* able to produce stable and predictable
revenues. It would be based on consumption expenditure, which does
not fluctuate to the same extent as income or asset values;
* able to maintain Hong Kong's competitiveness
and low-tax business environment as a means of attracting foreign
capital and talent;
* broad-based. It could be levied
at a low rate, but still produce significant revenues;
* fair. Individual consumption determines
the amount of tax paid. The more money spent, the more tax paid;
and
* capable of growing in line with
consumption in the economy, even with an ageing population.
It is the Government's intention
that the tax reform package would not need to generate additional
revenue. For the first five years after the introduction of a GST,
all revenue generated (after deducting administrative costs) would
be returned to the community as tax relief and other compensation
measures. The Government proposes that all primary elements of the
tax reform, once finalised and introduced, would also remain unchanged
for the first five years.
Overseas experience is that a relief
or compensation package is usually introduced upon the launch of
a GST to compensate those affected for the impact on their livelihood
through any increased living costs. Accordingly, the Government
proposes to reduce tax rates for all existing taxpayers including
the rates for Salaries Tax, Personal Assessment, Property Tax and
Profits Tax. These reductions would also enhance Hong Kong's competitiveness
in attracting and retaining talent.
A broad range of relief measures
is also proposed. An upfront, one-off supplement equal to the estimated
GST impact on the Social Security Assistance Index of Prices (SSAIP)
would be provided to households under the protection of Comprehensive
Social Security Assistance (CSSA), with actual price adjustments
to follow in subsequent years. Low-income households not in receipt
of CSSA would be provided with an annual cash GST allowance of $2,000
per household. An across-the-board annual GST credit of $500 to
be used against water and sewage charges for every household for
an initial five-year period is also proposed, subject to review
after this period. Finally, an across-the-board annual GST credit
of $3,000 per household to be used against Rates for an initial
five-year period is proposed, again subject to review at the end
of the period.
"As our present economic
circumstances and those in the foreseeable future are positive,
we have an opportunity through this consultation process to think
clearly about this important issue," Mr Tang said. "We
do not need to rush into a decision and can take our time to consult,
consider and plan the best approach to reform our tax base and manage
our public finances.
"As the introduction of
tax reform would have implications for the entire community, we
shall progress this issue cautiously and carefully. Accordingly,
we propose a consultation period of around nine months. We will
listen to the views of the community widely and carefully and will
prepare a report on the views received for the Government of the
next term to consider whether a GST should be implemented in Hong
Kong.
"We welcome all views
on this consultation document, in particular on the proposed GST
framework, the household compensation package and other tax changes
and relief measures. The proposals put forward in this document
are not meant to be conclusive, but have been drawn up as a basis
to stimulate rational and informed discussion on this subject."
Ends/Tuesday, July 18, 2006
Issued at HKT 11:52
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