I read with interest that the Hong Kong General Chamber of Commerce believes that it is essential to reduce the rate of profits tax, the tax on business profits, to 15% in order to enhance Hong Kong’s competitive position. I question whether a reduction in the rate of profits tax is that important in the decision process of a person looking to establish a place of business in Asia. It is more likely that consideration will be given to a wide range of issues of which taxation is only one and not necessarily a priority.
An across the board reduction in the rate of taxation will benefit all people carrying on business in Hong Kong whether it is major corporation or a sole trader. Is it necessary to benefit large multi-nationals at the expense of the Government’s revenue? If there is a desire to assist SMEs perhaps the Government should be encouraged to introduce a small companies rate, i.e. say a 10% profits tax rate for companies whose profits or turnover (whichever is considered appropriate) falls below a specific threshold.
In contrast an issue of importance to SMEs is their ability to obtain immediate relief for agreed tax losses. At present losses can only be carried forward against future profits. I would strongly urge the Government to permit the carry back of losses, for say a period of 3 years, and give consideration to allowing the transfer of losses within a group of companies. Such a proposal will not give rise to a tax leakage it will merely accelerate the timing of relief to a taxpayer. After all it can be argued that a person should not be paying tax when their aggregated revenue results show a loss position.
Finally, I would add that the reduction of tax rates neither solves the Government’s problem regarding Hong Kong’s narrow tax base nor will it assist the Government’s ability to fund its social welfare programme.
