The Hong Kong Budget supports economic diversification and increases tax allowances to benefit majority of the society


24 February 2016

Hong Kong – In the Hong Kong Government’s 2016/17 Budget speech today, Financial Secretary John Tsang proposed a number of relief measures amounted to a sum of HK$38.8 billion, to benefit both the citizens and a variety of industries. In order to keep the city competitive and its development sustainable, the Government has set aside budgets for not only the traditional pillars such as tourism and finance, but also a wide range of other industries including technology, logistics, start-ups, fashion and film.

William Chan, tax partner at Grant Thornton Hong Kong, said, “The latest Budget shows that the Government is well aware that Hong Kong can’t afford to sit on its laurels. As such, it has expanded from the traditional economic mainstays and laid plans to foster a wide range of other industries andsectors. The initiatives bode well for the city’s long-term development and sustainable economic growth while enhancing its existing advantages.”

Innovative and traditional industries join forces to promote Hong Kong’s economic diversification

Tourism, an important economic pillar of Hong Kong, faced economic turndown and fierce competition from neighbour countries. The Government proposes several relief measures in the 2016/17 Budget to tide the tourism industry over. Such measures include exemption or reduction of several licensing fees and increased funds for promotion.

In addition to the support to traditional pillars, the Budget also proposes initiatives to foster start-ups and to allocate resources to the development of information technology in threefold, namely artificial intelligence, healthcare for the elderly and the evolution of Hong Kong into a smart city, so as to stimulatethe economy with the application and commercialization of the technological research results.

The Government also follows up its support to the fashion and film industries in the previousfiscal year and introduces further measures such as promoting local fashion designers and emerging local fashion brands in Hong Kong and overseas markets,and bolstering the coffers of the Film Development Fund to subsidize locally produced Cantonese films’ general release and publicity in mainland China. Mr. Chan said: “We are glad to see that the Government has changed its views on how to stimulate the economy and no longer relies solely on such economic pillars as finance, real estate, and tourism for development butembarks on economic diversification. For example, it has set plans to foster technological innovation and to revive the city’s film and fashion industries which once thrived in the local and Southeast Asian markets. The Budget marks agood beginning and lays the foundations for the city’s long-term economic development, even though it does not elaborate much on each industry and/or sector earmarked for support and the initiatives are not expected to yield results in near future.”

In the Budget, the Financial Secretary points out that the Government will continue to explore the development and application of financial technology (“Fintech”). Mr. Chan said, “We are encouraged by the Government’s initiativesin developing Fintech because this is a good start for Hong Kong’s long-term development. Fintech has been gathering momentum rapidly in recent years, but Hong Kong lags behind other countries and regions in this regard and does not allocate enough resources to it. We hope that the Government will put forth a blueprint for the development of Fintech as soon as possible, and that it will implement the relevant measures soon to reinforce the city’s status as an international financial centre.”

Relief measures benefit various sectors but tax allowances should be pegged to inflation

The Government has proposed various relief measures in the Budget for the fiscal year of 2016/17 to tide the citizens over economic difficulties. Specifically, it proposes to reduce tax and raise personal tax allowances, including basic allowance, single parent allowance and the allowance for maintaining dependent parents or grandparents in order to assist large sections of the population to cope with the financial pressure.

Mr. Chan said, “We are glad to see in this Budget that the Governmentis taking all sections of society (including the middle class) into account, and at the same time it follows closely the principle of keeping expenditure within the limits of revenue. In the long run, the Government should consider pegging tax allowances to inflation so as to mitigate the impact of the latter.”

Hong Kong’s regulatory regime for financial sector needs to meet international standards

The Financial Secretary also proposes in the Budget that Hong Kong is obliged to join the Group of Twenty to combat the base erosion and profit shifting. In what can be regarded as aprelude to the proposed move, the Government introduced a bill on adoption of the Standard for Automatic Exchange of Financial Account Information in Tax Matters into the Legislative Council earlier in January. Mr. Chan said, “Hong Kong needs to maintain its status as an international financial centre and its economic prosperity with a fair and transparent mechanism for the market. The city’s existing regulatory regime for the financial sector lags behind those ofother international financial hubs, and we suggest the Government to keep up with the times by adopting the international standards, so as to maintain the city’s competitiveness.”

Please read 2016-17 Budget headlines for more information.