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With Hong Kong expected to achieve a budget surplus in the current fiscal year, PwC suggests that the implementation of further tax measures to ensure the city's international competitiveness, and to strengthen Hong Kong's leading position as an international financial centre, should now be investigated.
 

 

PwC forecasts that Hong Kong's government will record a HKD22.3 billion ($2.9 billion) budget surplus in the 2013/14 fiscal year, against the small deficit of HKD4.9 billion originally forecasted by the government.

 

Total revenue from profits tax and salaries tax should be around HKD180.9 billion, while revenue from stamp duties will drop from HKD42.9 billion in 2012/13 to HKD36.1 billion in 2013/14 following the success of the stamp duty hikes introduced by the government to restrict property speculation. Revenue from land sales is forecast to reach HKD79.6 billion, HKD10.5 billion higher than the government's original estimates, and expenditure is expected to be lower than the government's target of HKD44.4 billion, at around HKD41.5 billion.

 

However, KK So, tax partner at PwC Hong Kong, added: "Given the source of revenue of the Hong Kong Government is relatively confined, it should adhere to the prudent fiscal discipline of keeping expenditure within the limits of revenues and committing resources only where justified and needed."

 

Within those limits, Jeremy Choi, tax partner at PwC Hong Kong, outlined: "The government should undertake a review of its tax system to ensure Hong Kong stays competitive and continue to attract more business.

 

"To provide a sustainable business environment, especially for Hong Kong manufacturing companies," he recommended that the Government should "relax the restriction imposed by Section 39E of the Inland Revenue Ordinance on depreciation allowance for plant and machinery used outside of Hong Kong. To help the business sector, PwC also suggests to introduce a group tax loss relief measure."

 

PwC proposes, as a timely relief for small and medium-sized enterprises, a reduction in profits tax from 16.5 per cent to 10 per cent for companies with taxable profits below HKD500,000, while it also recommends that salaries tax bands be widened from HKD40,000 to HKD48,000 and, to alleviate the tax burden on the middle class, the mortgage interest deduction period should be extended from 15 years to 20 years, with a rise in the maximum interest deductible from HKD100,000 to HKD150,000 per annum.

 

With regard to Hong Kong's position as a leading international financial centre, Peter Yu, tax leader at PwC Southern China and Hong Kong, pointed out that: "Hong Kong is facing arising challenges as well as opportunities from the continuing internationalisation of the renminbi; new offshore RMB businesses operating in Taiwan and Singapore; and the development of the financial industry in the free trade pilot zones in Mainland China."

 

He noted that, "the Financial Services Development Council (FSDC) has already recognised in its earlier report that Hong Kong's leading position as an international financial centre needs to be further strengthened."

 

PwC urges the government to adopt the initiatives proposed by the FSDC, including its proposals for tax exemptions and anti-avoidance measures on private equity funds, and to promote Hong Kong's bond market by introducing a profits tax exemption for all short and medium bonds.

 

Source: Tax-News