LAW & COMPLIANCE

Less Surprises in Hong Kong’s ‘Stock-Taking’ Budget Announcement, Says PwC

The 2017-18 Hong Kong Budget, presented by Financial Secretary, Paul MP Chan, presents a comprehensive agenda for the incoming administration, according to PwC tax experts.

While the Budget gave little in the way of surprises, it offered a detailed overview of recent government achievements and ongoing programmes in a wide range of fields.

“This was a stock-taking budget,” said Jeremy Choi, Tax Partner of PwC Hong Kong. “We feel that it was appropriate at the end of one administration and in anticipation of a new one to go into more detail than usual. It laid out the full scope and span of government activity – and thereby suggested a thorough to-do list for the next administration.”

The budget summarized government initiatives covering all aspects of Hong Kong’s economy, from supporting pillar industries and the public sector to a raft of initiatives to support potential new economic drivers, such as aircraft finance.

The budget also highlighted how recurrent expenditure on social welfare has risen steadily in recent years – up by 71% in the five years to 2017-18 to reach HK$73.3bn. This had led to renewed discussion on whether Hong Kong needs to address its relatively narrow tax base.

“Continuing change to the demographics of Hong Kong may prompt a future administration to look again at broadening the tax base,” says Reynold Hung, China South and Hong Kong Tax Leader. “Combined expenditure on social welfare and health next year is forecast to be 34.6% of recurrent expenditure – up from 24.8% in 2002-03. However, we believe that any change to a broader tax base should be revenue neutral, but that it should also bring more stable revenues.”

As well as a cut in salaries tax and a waiver of rates for four quarters, the tax deduction period for home loan interest has been extended from 15 to 20 years.

The government has also announced the establishment of a new Tax Policy Unit within the Financial Services and Treasury Bureau. Its aim is to take a holistic view of the various tax measures proposed by the Government, such as those designed to encourage Innovation and Technology expenditure.

“Through the Smart City concept, which was featured in the last Policy Address, the government is looking at how investment in Innovation & Technology can improve livability,” says Agnes Wong, Tax Partner of PwC Hong Kong. “The government has so far allocated HK$18bn to this area. Any improvements to livability that this funding can deliver will translate directly into improved competitiveness for Hong Kong, which is a really tangible benefit.”       

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