Deloitte: Hong Kong's New Budget Measures Elude Tax Concerns of Businesses

Despite the tax relief and incentives announced in the 2013 budget, the Hong Kong government still has not addressed many important requests from the business community, including a long overdue comprehensive review of the tax system, says Deloitte in reaction to Financial Secretary John Tsang's budget speech for the new administration.


"This issue seems to have eluded successive administrations," says the firm.


Among the tax measures that have been announced, is a reduction in profits tax aimed at attracting more enterprises to form captive insurance companies in Hong Kong has also been proposed.


"The effectiveness of this measure is in doubt as popular locations for captive insurance companies, such as Bermuda and Singapore, do not tax such profits. The relief proposed in the budget still lags behind these other jurisdictions," states Deloitte.


As expected, familiar “one-off” benefits were continued in this year’s budget, making these initiatives appear like on-going recurring benefits. Despite stronger than expected revenues in 2012/13, the value of these benefits have actually fallen.


These “one-off” benefits include the waiver of business registration fees for 2013/14 and the waiver of 75% of profits tax, salaries tax and tax under personal assessment for 2012/13 (subject to a ceiling of HK$10,000).


Hong Kong’s four traditional pillar industries – namely trading and logistics, tourism, financial services as well as business and professional services – continue to be a key priority for the SAR’s economic future.


The government has announced a range of measures to promote these priority sectors. For trading and logistics, 12 hectares of land at Tuen Mun West and Tsing Yi have been earmarked for developing logistics facilities.


These new precincts will provide more than 300,000 square metres of space and create 7,500 new jobs.


For financial services, the government’s Bond Program will be expanded from HK$100 billion to HK$200 billion and includes a further HK$10 billion issue of the popular iBond.


For fund and asset management, the government is extending the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong.


This measure will allow some private equity funds to enjoy the same tax benefits as offshore funds, making it more attractive for private equity funds to do business via Hong Kong.


The government will also consider legislative amendments to introduce the Open-ended Investment Company to be established in Hong Kong. This vehicle is becoming increasingly popular throughout the funds industry. This measure will attract more traditional mutual funds and hedge funds to domicile in Hong Kong.


Deloitte says these proposed changes are a step in the right direction to further strengthen Hong Kong’s role as a regional asset management centre. "But there is more the government can do to further enhance the competitiveness of Hong Kong in the regional asset management market," says the firm.


Support for SMEs
Small and medium enterprises will also receive a boost in the form of support measures that include extending the application period for the special concessionary measures under the SME Financing Guarantee Scheme for one year.


The government will also increase the cumulative amount of the grant under the SME Export Marketing Fund from HK$150,000 to HK$200,000.


Among the measures is the introduction of a “Small Business Policy” for Hong Kong enterprises with an annual business turnover of less than HK$50 million.


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