A nine-month consultation exercise was launched in Hong Kong
yesterday to invite views on a proposal to introduce a goods and
services tax (GST) to broaden Hong Kong's tax base.
Speaking to the press on Tuesday morning, Hong Kong Financial
Secretary Henry Tang said that although the subject is
controversial, the Hong Kong Special Administrative Region (HKSAR)
government will not evade the issue because it has a great impact
on Hong Kong's future stability and prosperity.
Noting that Hong Kong's tax base is narrow, he said the
introduction of a low, single-rate GST is a viable option for Hong
Kong.
"This would secure the long-term sustainability of our revenue
base and our capacity to meet public expenditure needs," Tang
said.
Tang emphasized the HKSAR government has no intention of
altering Hong Kong's envied position as a low-tax environment.
"As our present economic circumstances and those in the
foreseeable future are positive, we have an opportunity through
this consultation process to think clearly about this important
issue," Tang said.
Assuming a 5-percent GST rate is levied, this would translate to
HK$30 billion (US$3.87 billion) in gross revenue.
The HKSAR government proposes that, for the first five years
after the GST's introduction, all revenue generated after deducting
administrative costs would be returned to the community in the form
of tax relief and other compensation measures.
It also proposes that all key elements of the tax reform, once
finalized and introduced, would remain unchanged for the first five
years.
The proposed GST is expected to have a temporary and modest
impact on household living costs. For example, with a 5 percent
GST, the one-off, short-term price increase is estimated to be
approximately 3 percent.
To alleviate a GST's impact on households, a number of relief
measures are proposed alongside its introduction, such as reducing
tax rates for all existing taxpayers including tax rates for
salaries, personal assessment, property, and profits for
unincorporated businesses.
The proposed GST framework also includes business tax-relief
measures, such as a cut in profits-tax rates and abolishing the
capital fee requirement to encourage more businesses to incorporate
in Hong Kong.
It is estimated that there would be approximately HK$20 billion
(US$2.58 billion) remaining after meeting all administrative costs
and the costs of providing the proposed household, business and
charities compensation measures.
"We are aware that GST introduction would have widespread
implications for Hong Kong. Therefore, we will listen to public
views extensively before making a recommendation to the government
in the next term to consider whether and how Hong Kong should
pursue tax reform and introduce a GST," Tang said.
(Xinhua News Agency July 19, 2006)