PricewaterhouseCoopers expects the Hong Kong government will record a HK$28.7 billion (US$3.7 billion consolidated budget surplus in the fiscal year 2012/13 against a small deficit of HK$3.5 billion (US$451 million) forecasted by the government.
In view of the global economic uncertainties, PwC urges the government to grasp the opportunities brought by the National 12th Five-Year Plan as well as to sustain the competitiveness of Hong Kong.
"The National 12th Five-Year Plan proposes lifting the share of the value added of the service sector in the Mainland's GDP by four percentage points in five years, equivalent to Hong Kong's GDP in one year," says Peter Yu, PwC Southern China and Hong Kong Tax Leader.
"This will provide development opportunity of massive value for Hong Kong, as a service-oriented economy. Given the pilot financial zones in Qianhai & Hengqin are already in place, Hong Kong should embrace its four pillar industries - finance, logistics and trade, tourism, and professional services, as its economic growth engines to leverage on the emerging opportunities."
PwC expects the total revenue of profits tax and salaries tax will be around HK$165.9 billion (US$21.39 million). With the implementation of special stamp duty measures curbing the sky-high property prices, PwC expects the revenue from stamp duties will drop from HK$44.4 billion (US$5.7 billion) in the fiscal year 2011/12 to HK$37.8 billion (US$4.8 billion) in 2012/13.
Revenue from land sale, however, will be boosted by the land sale plan released by the government in late December 2012, from which we expect an additional HK$20 billion (US$2.5 billion) will be recorded in the first quarter in 2013. Overall, PwC expects a consolidated budget surplus of HK$28.7 billion (US$3.7 billion).
"The government should undertake a review of its tax system to ensure that it will cope with the needs of the future and stay competitive," says KK So, PwC Hong Kong Tax Partner. "It should introduce measures to assist with the development of the strategic industries. The Government should also provide more clarity and certainty on certain areas of the tax law, such as the taxation of fund management activities in Hong Kong, and continue the negotiation with more territories on new agreements to avoid double taxation."
To promote Hong Kong’s bond market, PwC proposes profits tax exemption for all short, medium and long-terms bonds.
To strengthen Hong Kong as a global fund management centre and the platform for private equity investment into the Mainland, PwC proposes that the current profits tax exemption for foreign funds should be expanded to Hong Kong resident funds and private equity funds.
For SMEs, PwC proposes that the profits tax rate should be reduced from 16.5% to 10% for taxable profits up to HK$500,000 (US$64,000).
PwC also recommends the salaries tax bands be widened from HK$40,000 to HK$ 45,000 (US$5,000 to US$5,800).