Hong Kong – Financial Secretary, Paul Chan Mo-po, delivered his speech on the Hong Kong Government’s 2024/25 Budget (the “Budget”) today, proposing an array of measures which include removal of all property curbs with immediate effect to boost the ailing property market as well as tax incentives and funding to revitalise the key sectors and accelerate the ongoing economic upgrade and transformation. Such measures aim to bolster the city’s economy and sharpen its competitive edge.

William Chan, tax partner at Grant Thornton Hong Kong, said, “The removal of all property cooling measures may lift the market sentiment in the short term, but the high interest rate and tepid economic outlook will continue to weigh on buyer confidence. We believe that the revival of economy alongside rising income would be the most effective and fundamental way to improve the housing demand and stabilise the property market.”

Mr. Chan added, “Facing persistently high budget deficits, the Government is under pressure to reduce spending and increase revenue. Although it might not be the right time to introduce new taxes amid the challenging economic environment, we reiterate our call for the Government to undertake a comprehensive review of the tax system and evaluate viable reform options in order to expand its revenue base and stay competitive in the fast-evolving global market. Beyond short-term initiatives and one-off measures, Hong Kong needs to devise a visionary blueprint for long-term development that strikes a balance between investing for the future prosperity and adhering to its long-held principle of fiscal prudence to withstand adversity.”

Resumption of Hotel Accommodation Tax Could Deter Tourists

To increase revenue to support economic development, the Budget proposed to resume the collection of the Hotel Accommodation Tax (HAT) at a rate of three per cent, with effect from 1 January 2025. The Government also plans to issue bonds of about HK$95 billion to HK$135 billion per annum in the next five years to drive the development of the Northern Metropolis and other infrastructure projects.

To alleviate financial burden on the public amid high interest environment and prolonged macroeconomic headwinds, the Government will reduce salaries tax and tax under personal assessment and reduce profit tax for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of HK$3,000.

Mr. Chan said, “While we think it is the right move to issue bonds to fund the investment in infrastructure and the long-term economic development, the resumption of the Hotel Accommodation Tax is contradictory to the Government’s goal of boosting tourism as it would make the already high hotel room rates even more expensive, further discouraging tourists from staying overnight. Also, the Government is actually increasing the salaries tax for the general public by not raising the personal salaries tax allowances in line with the inflation rate.”

Hong Kong needs to build a robust ecosystem to attract talent, start-ups and investments

The Government doubles down on developing digital economy and promote innovation in an effort to foster a more vibrant and diversified economy. To enhance support for the technology companies, the Government will launch a HK$10 billion New Industrialisation Acceleration Scheme (NIAS) this year for enterprises engaging in life and health technology, Artificial Intelligence (AI) and data science, advanced manufacturing and new energy technology. The Budget will also allocate HK$3 billion to Cyberport for the launch of a three‑year AI Subsidy Scheme to support local universities, research institutes and enterprises to leverage the Centre's computing power and achieve scientific breakthroughs.

Mr. Chan said, “While the Government ambitiously vows to transform Hong Kong into a world- leading innovation and technology hub, there’s still a long way to go for the city to reduce its traditional reliance on finance and trade sectors. In the light of intensifying global race for technology hub, we urge the Government to step up its game to build a robust ecosystem that would attract talent, start-ups and investments. It is also important for Hong Kong to align with national development strategies and foster a risk-taking mindset that is essential for driving innovation in the community.”

Government should step up efforts to tap the thriving economies of the Southeast Asia and the Middle East

In a bid to enrich its green and sustainable finance ecosystem, the Budget will extend the Green and Sustainable Finance Grant Scheme to 2027 and extend the scope of subsidies to cover transition bonds and loans. This will encourage related industries in the region to make use of Hong Kong's transition financing platform as they move towards decarbonisation.

To drive market development, the Government will extend the Grant Scheme for Open‑ended Fund Companies and Real Estate Investment Trusts for three years, and set up a task force to discuss with the industry measures for further developing the asset and wealth management industry.

Mr. Chan concluded, “We welcome the Government’s initiatives to fortify Hong Kong’s position as the leading green finance and wealth management hub in Asia. However, with rising geopolitical tensions and emergence of disruptive technologies, it is important for Hong Kong to stay agile and adaptable in a rapidly changing market. To further cement its standing as international financial center, we recommend that the Government should step up its efforts to tap the thriving economies of the Southeast Asia and the Middle East, while also exploring new incentives and streamlining process to attract more family offices and financial institutions to set up and operate in Hong Kong.”