KPMG Suggests Hong Kong Budget Tax Changes
Hong Kong’s Government should use greater-than-expected revenue receipts to implement measures to enhance the city’s international competitiveness in the 2015/16 Budget, according to a KPMG survey of senior Hong Kong-based business executives.
It is foreseen that the Government will be in a position of increased fiscal strength at the end of the 2014/15 fiscal year on March 31. KPMG has forecast that Hong Kong’s budget surplus will reach HKD65.5bn (USD8.45bn) this year, compared with an original estimate of HKD9.1bn. Revenues from stamp duty and profits tax, in particular, have been higher than expected.
Senior Hong Kong-based business executives said the Government should tackle Hong Kong’s high operating costs and a shortage of qualified employees in the upcoming Budget. Over 40 percent of respondents indicated competitiveness as a key issue, while the impending medium-term threat of a potential structural deficit led 53 percent of respondents to say that the Government should focus on stimulating economic growth to increase future tax revenues.
Ayesha Lau, Partner-in-Charge of Hong Kong Tax, KPMG China, stated that “revenues from tax collection, investment income, and land sales fluctuate severely with the global economic situation. Despite holding around HKD800bn reserves in hand, the Government should continue to pursue a prudent approach and spend its money wisely to improve Hong Kong’s competitiveness.”
Therefore, in its budgetary wish list, KPMG proposed that the Government introduce tax incentives for corporates setting up headquarters or service companies in Hong Kong and reduce the profits tax rate for small- and medium-sized enterprises. Meanwhile, to encourage innovation and technology development, it suggested that the Government should provide a super tax deduction for research and development expenditure.
It was pointed out that the uncertainties faced by businesses on their tax positions domestically and abroad are also damaging Hong Kong’s competitiveness. KPMG therefore urged the Government “to review the current tax system so as to increase certainty and cope with the international trend to combat ‘double non-taxation’.”
Lau added that “in addition to offering tax incentives, Hong Kong also needs to optimize the tax system, such as enhancing the certainty and transparency on automatic exchange of information, to increase competitiveness and to keep up with international tax developments. This includes increasing efforts on combating tax avoidance and implementing the OECD’s Base Erosion and Profit Shifting Action Plan.”
KPMG noted that the Government is considering ways to encourage women to rejoin the workforce, in response to an aging population and declining labor force. KPMG has proposed that the Government could offer tax incentives such as a working mother allowance and a caregiver allowance, and also an aged income earner allowance to encourage the elderly to remain in the workforce.
