Study advised government to employ fiscal resources to enhance competitiveness while helping the disadvantaged.
PwC expects the HKSAR Government will record a healthy HK$35 billion consolidated budget surplus in the fiscal year 2011/12 against a small deficit of HK$8.5 billion forecasted. In view of the global economic uncertainty, it is expected the overall economic environment will be more challenging in the year ahead. Given the circumstances, PwC urges the Government to examine how it may use its fiscal reserves to support a long-term strategy that enhances Hong Kong’s competitiveness while addressing the needs of different sectors of the community.
Marcellus Wong, PwC Hong Kong Tax Partner expects the total revenue of profits tax and salaries tax will be around HK$157 billion. “The overall economic activity up to the first quarter of 2011 remained relatively robust with corporate profits and personal income ensuring the Government will generate considerable revenue in the fiscal year 2011/12,” Mr Wong says. “On the other hand, while the property and stock markets remained active in the first half of the year, they suffered from the unfavourable external factors as the second half of the year phased in”.
PwC expects stamp duty revenue will be slightly less than the previous year, at about HK$44 billion. However, with policies aimed at increasing land supply, land sales revenue remained strong.
With healthy reserves in hand, the Government should continue to pursue a prudent approach when preparing the new Budget. It should address the specific needs of the community, particularly those of the underprivileged. At the same time, it should formulate a long term strategy to enhance Hong Kong’s competitiveness and secure Hong Kong as a leading global financial centre, as anticipated under the Mainland’s Twelfth Five-Year Plan.
KK So, PwC Hong Kong Tax Partner says, “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. It should consider introducing measures to assist with the development of industries, such as the Six Industries. The Government should also consider providing more clarity 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.” The recent World Bank and PwC Paying Taxes 2012 report released earlier this month revealed that Hong Kong's level of convenience in paying taxes ranked third in the world. This ranking is encouraging, and Hong Kong should continue to strive to adapt its tax system to maintain its competitiveness.
Existing profits tax and salaries tax rates are expected to remain unchanged. PwC recommends the salaries tax bands be widened from HK$40,000 to HK$ 45,000, and the personal income tax allowance be increased to HK$113,400 to bring them in line with inflation. By the same token, there should be upward adjustments for dependent parents, grandparents and disabled dependents allowances, according to a PwC report.
In alleviating the burden on the middle class, PwC suggests the Government consider extending the mortgage interest deduction period from 10 years to 15 years. In addition, PwC recommends a tax deduction for personal health insurance contributions and medical expenses up to a maximum amount of HK$20,000 per annum.
With the possibility of a global relapse into recession, the Government should be well equipped to weather future economic storms with its fiscal reserves. Rather than proposing another round of indiscriminate giveaway, PwC would welcome a review of the allocation of fiscal resources to ensure that the resources will reach out to the neediest.
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