Budget surplus to hit $56.4b in 2019 amidst hefty land sales revenue: KPMG

The figure is 62% higher than the government estimate.

The Hong Kong government is expected to record a consolidated budget surplus of $56.4b for FY2018/19 driven by higher-than-expected revenues from land sales, according to KPMG.

The forecasted surplus which is 62% higher than the government’s revised estimate of $34.9b is expected to boost the country’s fiscal reserves to approximately $1.2t by the end of March 2019 which is equal to roughly 34 months of government recurring expenditure.

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KPMG added that the government could put in place additional tax incentives such as a special tax loss relief to support taxpayers investing in startups in a bid to attract private investments and tax deduction on research and development (R&D) could enhance Hong Kong’s technology and innovation environment. 

“But in light of global uncertainties as well as rising expenditure on infrastructure, social welfare and medical services, the government should take the lead in diversifying opportunities for more sustainable development,” KPMG China’s tax partner Alice Leung said in a statement. 

Meanwhile, tax incentives will also enable corporates to leverage on the Greater Bay Area opportunities. “Extending the current super tax deduction to Hong Kong taxpayers outsourcing their R&D activities to sub-contractors in the Greater Bay Area will allow companies to leverage the talent pool and available technologies in the region,” KPMG China’s tax principal Stanley Ho explained. “This will also further promote collaboration between Hong Kong and other cities in the Greater Bay Area.”

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Additionally, KPMG proposed in its report that introducing tax incentives for corporations setting up regional headquarters in Hong Kong will be largely beneficial for the country as it plays a role in promoting finance, trade and logistics developments in the Greater Bay Area. It pointed out how by providing a concessionary tax rate at 8.25% to qualifying income could help attract new businesses to the city and consequently create more job opportunities for local and further bring in capital inflow.

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Offering tax incentives for energy-efficient buildings and a 50% profits tax exemption for qualified recyclers and waste management companies for a period of five years could be possible options the government could look into to boost Hong Kong’s sustainability.

It also added that introducing a primary home rental deduction of up to $100,000 per annum could aid in bringing down living costs. Other recommended measures included tax deductions for working families hiring domestic helpers as well as for those seeking help from grandparents to look after their families.