The Hong Kong General Chamber of Commerce (HKGCC) is pleased to see that the Government is finally taking measures to seriously examine Hong Kong’s competitiveness from a tax perspective, and also looking at new drivers of the economy, as presented by the Financial Secretary Paul MP Chan in his Budget speech recently.
Hong Kong’s leading business body is also happy to see that there is continued support for SMEs, the backbone of our economy, to weather the very gloomy global economy.
“HKGCC has been lobbying the Government to set up a tax policy unit to examine the need to enhance our tax competitiveness, so we are pleased that this is finally starting to happen, albeit a little disappointed that the issues to be studied by the unit should be addressed immediately, because we have some catching up to do compared to some of our neighbors,” says HKGCC Chairman Stephen Ng.
“For example, we are asking the Government to examine as a matter of urgency our proposal for a two-tier profits tax to help start-ups and small businesses, as well as an R&D tax rebate.”
“We are confident that these two proposals would help drive the new innovation and technology sectors, which will be the engines of our economy growth in the coming years.”
Help stimulate the economy
The Chamber welcomes the Financial Secretary’s $35.1 billion worth of tax cuts and other short-term relief measures, which will help stimulate the economy. Moreover, the proposal to extend the profits tax exemption to onshore privately-offered open-ended fund companies, and tax concessions for aircraft financing are positive steps.
“These are all useful but sector specific. What we hope to see is more long-term planning that can cater to businesses as a whole,” added Ng.
Cash flow and market access are keys to the survival and success of SMEs, which is why HKGCC welcomes the various one-off enhancements including the suspension of business registration fees and business fees for tourism-related businesses. Salaries tax cuts are also welcome as this will help stimulate domestic consumption.
Useful for SMEs
The extension of the application period for the Dedicated Fund on Branding, Upgrading and Domestic Sales, and special concessionary measures under the SME Financing Guarantee Scheme will be useful.
The establishment of funding and subsidy schemes are also encouraging, but the group hopes the Government can look into also increasing the efficiency with which these schemes are administered, because some businesses find the process extremely cumbersome and time consuming.
Ng also appreciated efforts to devote additional resources to support start-ups, particularly in the Fintech fields, boost cross-boundary e-commerce, reserving $10 billion for supporting IT development, and also leveraging IT to develop Hong Kong into a smart city.
“We need to bring in more relevant programmes and innovation laboratories to achieve an economy of scale, which again is where our proposal for R&D rebates would reap dividends. It is also essential for regulators and the Fintech community to engage in constant dialogues, which will facilitate communication and optimise resources for all stakeholders,” he said.
Spending is fit for purpose
Overall, the group agrees with the Financial Secretary on the need to ensure spending is fit for purpose, and that relief measures to help the elderly and those in need are being targeted to those who need them most. That said, recurrent expenditure on social welfare has increased by 71% in the past five years to $73.3 billion in 2017-18. That is a huge amount of money so we would expect poverty figures to be doing more than edging down.
“Progress on alleviating poverty is making progress, which we applaud. We hope similar progress can be made in tackling labour shortages, which will become more acute starting next year as the workforce starts to decline in 2018.
“Increasing expenditure for capital works projects in the latest budget to $86.7 billion will benefit Hong Kong’s economy and population overall, but we cannot see where the labour is going to come from to support those projects. The construction sector already has huge labour shortfalls, which is pushing up costs of projects, including housing, and also causing delays.”
On manpower and education policy, HKGCC applauded the Government’s decision to set aside $2.7 billion for the implementation of the free quality kindergarten policy to ease parents’ financial burden and improve the choice of kindergartens.
“Hopefully this will release some of the latent workforce back into the economy and help in easing the manpower shortages, but we hope more emphasis can be placed on finding solutions for skills and labour shortages, particularly if we are going to be developing new areas like fintech and innovation.
“Overall, we applaud efforts for trying to ease the short-term pain of businesses, and at the same time support the development of the innovation and technology sectors, which will become important economic drivers for our economy. What we hope to see coming out of these plans are clear strategies for the longer-term development, competitiveness and well-being of Hong Kong,” Ng concluded.