It is that time of year when people, typically tax partners of the larger accounting firms, attempt to predict the Hong Kong Government’s budget surplus/deficit for the current year. This is often accompanied by a call for a reduction in the rate of profits tax, i.e. the corporate tax rate. Experience has shown just how difficult it is for the Government to estimate both short- and medium-range forecasts; even the Financial Secretary’s estimate of the surplus/deficit in the Operating Account and in the Consolidated Account in the annual budget speech can be significantly different from the final published results for a financial year. Whilst I am indifferent to this rather futile guessing game, it is the continual request for a reduction in the corporate tax rate from the current rate of 16.5% that I find particularly irksome. The principal sources of Hong Kong’s revenue are Profits Tax, Salaries Tax, Land Premium and Stamp Duty, and a significant reduction in any one of these will seriously impede the Government’s ability to fund its social programmes and infrastructure projects. Hence, in my opinion, there needs to be a very clear and reasoned justification for a reduction in tax rates.
Hong Kong’s direct and indirect tax rates are already amongst the lowest in Asia, and whilst a reduction in the headline rates will initially be acknowledged by potential investors, it is unlikely to result in attracting significant investment. It is the totality of Hong Kong’s attributes that’s important, i.e. its location; its education system; its communications, logistics and transportation infrastructure; its legal and political system etc. So why arbitrarily reduce the rate of corporate tax when funds are clearly needed to implement social programmes?
