The simplicity of Hong Kong’s tax system combined with its relatively low tax rates continues to underpin its global competitiveness, according to survey conducted by CPA Australia.
The survey of Hong Kong based business professionals shows that 70 per cent of respondents are satisfied or very satisfied with Hong Kong’s tax system although some specific recommendations for improvement were identified.
“It is important for an economy to be proactive in relation to the competitiveness of its tax system,” says Alex Malley, chief executive of CPA Australia said that taxation regimes internationally were becoming increasingly competitive.
“Since 2000 we have seen significant reductions in company tax rates in many economies including the UK, Turkey, Ireland and Taiwan. Hong Kong is currently competitive but it needs to build on its strong position.”
CPA Australia has previously made a recommendation to the government highlighting the merits of a “root and branch” review of the tax system that would instigate reforms that would give Hong Kong the best opportunity to prosper well into the future.
Other recommendations include tax incentives to develop fintech; reduce profits tax rate to 13.5 per cent for SMEs; tax holiday or reduced profits tax for regional headquarters in HK; and tax measures to encourage investments through corporate tax rate reduction or government subsidies for tax rate differences between Hong Kong and the Pearl River Delta (PRD) region.
“The Hong Kong government showed in this year’s Budget that it has a real commitment to generating long-term growth through strategic investments in innovation and research and development. We hope to see this commitment include consideration of relevant taxation reforms.”
Paul Ho, Chairperson of CPA Australia’s Taxation Committee – Greater China, said that while respondents were more likely to think that Hong Kong has a more internationally competitive tax system than Singapore, to maintain this position Hong Kong should now be considering a number of targeted changes.
“To address Hong Kong’s long-term economic and social challenges, from an aging population to a widening income gap, it is important that a comprehensive review of the tax system is part of the SAR Government’s agenda in the short term,” Ho said.
“On all the available information, I forecast the Government will register a surplus in the order of HKD50 billion for 2016/17 however Hong Kong has a relatively narrow and volatile tax base which will eventually place pressure on government finances.”
Ho notes that broadening Hong Kong’s tax base – perhaps through the consideration of a goods and services tax with suitable compensation mechanisms – should improve the Government’s long-term financial stability.
“It could provide a more stable source of revenue that may in time be used to lower other taxes which would contribute to Hong Kong’s competitiveness,” adds Ho.
With the number of regional headquarters in Hong Kong falling behind Singapore, Hong Kong has 1379 regional headquarters according to the Census and Statistics Department while Singapore has over 3500 according to International Enterprise Singapore, respondents were supportive of the government undertaking further action to encourage more regional headquarters to establish or enhance their presence in Hong Kong.