The Budget pours resources in I&T industry, but concrete approach is needed for tax reform

Hong Kong – Financial Secretary, Paul Chan Mo-po, delivered his speech on the Hong Kong Government’s 2018/19 Budget (the “Budget”) today, proposing an array of relief measures amounting to over HK$50 billion, which include tax incentives and funding for sectors such as education, healthcare and innovation and technology. Such measures are expected to solidify the economic prosperity with the goal of maintaining the city’s competitiveness and strengthening its position as an international financial centre.


William Chan, tax partner at Grant Thornton Hong Kong, said, “Given the huge fiscal surplus, the latest Budget offers billions in tax rebates and several short-term relief measures, which aim at sustaining economic growth and enhancing the city’s living standard. However, livelihood issues due to exorbitant property price have yet been addressed in a holistic manner. The Budget also overlooked the problem of narrow tax base against the backdrop of bullish stock market and property market.”


Bolstering I&T industrywhile increasing medical welfare

In the face of the intense international competition and the rise of new economy, new industries have sprouted with the extensive use of data and technology. The Budget has introduced various measures targeting new economy, bolstering the development of the emerging innovation and technology (I&T) industry.


Under the constant craze for technology start-up, the Budget proposes to reserve HK$50 billion to support I&T development, which includes HK$10 billion of capital injection to I&T Fund to cultivate business environment for the I&T industry. In addition, in view of the recent e-sports fever, the Financial Secretary proposes a HK$100 million fund for Cyberport, in order to allocate more resources to competition and training facilities as well as to nurture more talents in support of e-sports.


Mr. Chan said: “We are pleased to see that the Government is putting more effort in promoting the innovative industry and boosting spending on research and development to transform Hong Kong into a knowledge-based economy. If the Government puts forth various incentives such as additional tax deduction and government cash grants for start-ups, we believe more foreign investments will flow into Hong Kong.”


Given the aging population, the Budget this year embodies government’s effort in healthcare and welfare system targeting to tackle the anticipated problems brought by shrinking workforce and increasing medical burden. The Financial Secretary proposes to pour recurrent capital of about HK$1,263 million to elderly services while allocated an additional recurrent funding of HK$6 billion to the Hospital Authority to improve public medical services.


“While aging population continues to be a major concern for Hong Kong society, we urge the Government to take long-term measures instead of giving out one-off relief subsidies, such as attracting foreign skilled labour force and launching a comprehensive blueprint on medical services, to ensure people’s living standard and make good use of the massive fiscal reserves”, said Mr. Chan.


Narrow taxbase is yet to be addressed

Regarding the housing problem and increasing living cost of the city, the Financial Secretary proposes to widen the salaries tax bands from HK$45,000 to HK$50,000 and raise personal tax allowances such as child allowance and dependent parent allowance to alleviate the financial burden of the middle class.

Whilst the Government is working towards the implementation of the two-tier profits tax rates system, this Budget has not put forward any similar measure to reduce the tax burden on individuals.


Mr. Chan said, “Although the proposed relief measures may be able to ease citizens’ burden and stimulate the economy in the short term, the Government does not take any action to widen the tax base. Hong Kong has heavily relied on the unstable revenue from land sales, stamp duty and salaries tax in the past years, however, the revenue may drastically drop in troubled times especially when cyclical fluctuations occur. We urge the Government to adopt concrete measures to speed up tax reforms, so as to diversify the revenue source to support Hong Kong’s long-term economic prosperity.”


Leveraging vast opportunities to expand economic network

Regarding the housing problem and increasing living cost of the city, the Financial Secretary proposes to widen the salaries tax bands from HK$45,000 to HK$50,000 and raise personal tax allowances such as child allowance and dependent parent allowance to alleviate the financial burden of the middle class.


Whilst the Government is working towards the implementation of the two-tier profits tax rates system, this Budget has not put forward any similar measure to reduce the tax burden on individuals.


Mr. Chan said, “Although the proposed relief measures may be able to ease citizens’ burden and stimulate the economy in the short term, the Government does not take any action to widen the tax base. Hong Kong has heavily relied on the unstable revenue from land sales, stamp duty and salaries tax in the past years, however, the revenue may drastically drop in troubled times especially when cyclical fluctuations occur. We urge the Government to adopt concrete measures to speed up tax reforms, so as to diversify the revenue source to support Hong Kong’s long-term economic prosperity.”


Please read 2018/19 Budget headlines for more information.