Hong Kong proposes tax reduction for 2021/22 assessment

The tax measure will cost the government $14.3b and will benefit 2.01 million taxpayers. 

Over two million Hong Kong taxpayers may expect a reduction in taxes after Financial Secretary Paul Chan proposed these measures in the market’s 2022/2023.

In a budget delivered on 23 February, Chan sought a “one-off” 100% reduction of profits tax, salaries tax, and tax under personal assessment for 2021/2022, which will be subjected to a ceiling of $10,000 per case.

The proposal is expected to cost the government $14.3b and will benefit 2.01 million taxpayers liable to salaries tax and tax under personal assessment and 151,000 businesses.

This will reduce the amount of tax payable by taxpayers for the year of assessment 2021/2022. Taxpayers must file profit tax returns and tax returns for individuals for the assessment year 2021/2022. It will be applied by the Inland Revenue Department in the final assessment, following the enactment of relevant legislation. 

The proposed tax reduction will only be applied to the final tax of the assessment year 2021/2022 but not the provisional tax of the same year. With this, taxpayers must still pay the provisional tax on time as indicated in the demand notes issued to them. 

The provisional tax paid will be applied in payment of the final tax for the assessment year 2021/2022 and provisional tax for the year of assessment 2022/2023, whilst any excess balance will be refunded.

The proposed reduction, however, will not be applicable to property tax, but individuals with rental income—if eligible for personal assessment—may get property tax reduction under personal assessment.

Meanwhile, a taxpayer, who is separately chargeable to salaries tax and profits tax, may have tax reduction under each of the tax types. 

For taxpayers that have business profits or rental income and electing for personal assessment, the reduction will be based on the tax payable under personal assessment. 

It might be different, however, from the amount of tax reduction they would get if they are not assessed under personal assessment and the exact amount should be evaluated case by case. 

Chan also asked legislators to introduce a tax deduction for domestic rental expenses from the year of assessment 2022/2023. 

Taxpayers liable to salaries tax or tax charged under personal assessment who do not own any domestic property are eligible for deduction for the rent paid by them or their spouse as the tenant, with an annual ceiling of the deduction at $100,000.

Aside from tax reduction, the Financial Secretary also proposed to waive business registration fees for 2022 to 2023.

All these tax measures will take effect after the completion of the relevant legislative processes.