China

Details

  • Service: Tax
  • Type: Press release
  • Date: 1/18/2012

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KPMG forecasts a HK budget surplus of HKD50 billion for 2011/12 

Urges an increase in public spending to stimulate economy and a review of the current tax structure

 

18 January 2012, Hong Kong

 

The Hong Kong Government is set to record a consolidated budget surplus in the region of HKD 50 billion against a deficit of HKD8.5 billion originally estimated by the Government for the fiscal year 2011/12.

 

This is mainly being driven by increased revenues from land sales and less than expected expenditure from the Additional Commitment Account, according to forecasts by accounting firm KPMG China.

 

While relief measures are widely anticipated, KPMG China suggests the Government also implement plans to increase Hong Kong's competitiveness in the long term.

 

Jennifer Wong, Tax Partner, KPMG China, says: "There are rising expectations of an upcoming downturn in the global economy as a result of the current debt crisis in Europe. Many corporates are tightening their belts as they see a difficult year ahead. Therefore we urge the Government to stimulate the economy and boost employment in Hong Kong. The Government can help to do so by increasing government expenditure, especially given its HKD600 billion reserves in hand."

 

Proposed measures to increase public spending include speeding up the development of regions such as Eastern Kowloon (Kai Tak, Kowloon Bay and Kwun Tong areas) and Northern New Territories. The Government can also look to provide more incentives for emerging industries (e.g., health care and education) by offering lower tax rates and subsidies for training.

 

"We also urge the Government to double the tax deduction rate to 200 percent for research and development expenditure, which will help to induce corporate investment and enhance Hong Kong's long term competiveness," adds Jennifer Wong.

 

Proposed one-off relief measures for 2012/13 include a salaries tax reduction of up to 75 percent for the coming year, with a ceiling of HKD 8,000, up from HKD 6,000; waiver of rates at HKD 2,000 per rateable property per quarter; to double the monthly subsidy for each residential electricity account from HKD150 to HKD 300.

 

KPMG China proposes extending the home loan interest deduction period to 15 years from 10 years; a salaries tax band increase to HKD 45,000 from HKD 40,000 and personal tax allowance to be raised to HKD 120,000 for single individuals, HKD 240,000 for married couples.

 

KPMG China suggests the Government offer public housing tenants a rental wavier for two months, and individuals receiving additional two months' Comprehensive Social Security Assistance.

 

Jennifer Wong, Tax Partner, KPMG China, says: "Investors are looking for certainty and transparency; the Hong Kong tax rate is low but there are grey areas particularly based on the source of tax. This has given rise to numerous disputes between taxpayers and the Inland Revenue. The Government should therefore make the tax system simple, certain and transparent."

 

KPMG China suggests the introduction of a "jumbo tax deduction" for corporates that hire individuals with disabilities, as part of measures to stimulate the job market.

 

Jennifer Wong adds: "To help SMEs cope with current economic challenges, we suggest a reduced profits tax rate from 16.5 percent to 10 percent for SMEs, and the Government to also relax the terms of the SME Loan Guarantee Scheme by increasing the guarantee amount to 80 percent of the approved loan, up from the current 50 percent."

 

KPMG China also calls for a review of the current structural issues in Hong Kong's tax system to ensure it can cope with the future challenges and remains competitive. This specifically relates to the current narrow government revenues collection base, where revenues are mostly driven from land sales and income tax collection from a small group of taxpayers. Less than 40 percent of Hong Kong's working population or 20 percent Hong Kong's total population currently pay tax. Further, over 65 percent operating revenues come from direct tax and 35 percent of salaries tax is contributed by only 1 percent of taxpayers.

 

"We therefore ask the Government to reconsider introducing indirect taxes such as the Goods and Services tax (GST), which will help to widen the tax base," adds Jennifer Wong.

 

- Ends -

 


Appendix

 

 

About KPMG

 

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

 

KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shanghai, Shenyang, Nanjing, Hangzhou, Fuzhou, Xiamen, Qingdao, Guangzhou, Shenzhen, Chengdu, Hong Kong and Macau, with around 9,000 professionals.

 

 

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