Hong Kong Budget 2017 lacks 'new and inspiring tax measures'

The Financial Secretary could have been more innovative, says Deloitte.

The Financial Secretary delivered a forward looking budget, which seeks to boost local competitiveness and enhance the traditional role of Hong Kong in providing strategic connectivity to global markets. However, the Financial Secretary seems cautious in this last budget under the government led by Chief Executive Leung Chun-ying, which lacks new and inspiring tax measures to address the pressing needs of the community.

In his maiden budget, the Financial Secretary has highlighted the government’s efforts to uphold the principle of free trade and expand commercial and trading network through trade and investment agreements.

In the next five years, the government will also focus on the development of Hong Kong into a maritime services hub in the region, as well as a platform connecting the Mainland with other parts of the world. We are also pleased to learn that new tax legislation is to be introduced to attract aircraft leasing companies to develop business in Hong Kong.

“There are also measures to develop high value-added logistics services, including transhipment and cross-border e-commerce, along with emphasis to support Hong Kong in its participation in Asian Infrastructure Investment Bank and leverage opportunities from the Belt and Road Initiative. This Budget has the mission to continue developing Hong Kong as an infrastructure investment and financing centre, and as the channel to connect China with the global markets,” said Davy Yun, Tax Partner, Deloitte China.

Deloitte also welcomes the government’s proposal to set up a tax policy unit in the Financial Services and Treasure Bureau to examine different tax issues of Hong Kong from a macro perspecitive, including the internaitonal competitiveness of our tax system and the long-standing problem of a narrow tax base.

“The government should be commended for introducing a tax review after years of demand from the profession. This is also something we have advocated in our recommendations to the government. The Financial Secretary has also taken on board our proposal to widen the marginal bands of salaries tax, but the level of increments could have been higher in order to alleviate the burden of the middle class,” said Sarah Chan, Tax Partner, Deloitte China.

However, the Financial Secretary could have been more innovative in tax measures. Many of the proposed tax actions, such as salaries and profits tax reduction for the current fiscal year, were already introduced in previous budget proposals, and this year’s budget does not seem to pay enough attention to some of the critical social and economic issues, such as housing problem and aging population.

The government is in the right direction to promote the development of innovation and technology industry, which has emerged as the new enegine for sustainable economic growth of Hong Kong. A total of HK$18 billion has been earmarked to promote innovation and technology development. There are also measures to support the growth of Fintech, which does not only provide consumer with better convenience, but makes sure that Hong Kong will not lag behind in the development of payment and transaction technologies.

“The government should look into actively promoting different new industries in Hong Kong, including research and development (R&D) in the high technology space. It is now considering offering tax deduction on eligible R&D expenditure. In our view, it can provide what we call a ‘super tax dedcution’ of 200 percent to enocouarge researh efforts. At the same time, it can also provide interet-free loan and rental free office to some top-tier foreign technology companies. The government should also support the development of other priority industries, such as medical, film production and food manufacturing,” said Yvonne Law, Senior Advisor, Deloitte China.