PwC demands tax overhaul as land revenue misses by 38%

Total fiscal reserves are projected to fall to $654.1b by the end of March 2026.

PwC Hong Kong gave a series of strategic recommendations for the Government’s upcoming budget, aiming to drive growth and unlock new opportunities.

Despite the 3.3% GDP growth in the first three quarters of 2025, Hong Kong continued to face sluggish property transactions, leading to a significant shortfall in land sales revenue, estimated at $13b, 38% below the Government’s original forecast.

Revenues from profits and salaries tax are also expected to fall by 5%, reaching $282b, whilst stamp duty receipts are projected to exceed expectations at $100b.

As a result, the government is expected to record an operating surplus, with a modest consolidated deficit of just $200m for 2025/26, a sharp improvement from the initially projected $67b deficit.

PwC estimates that Hong Kong’s fiscal reserves will stand at $654.1b by March 2026, equaling approximately 10 months of Government expenditure, marking a low point compared to previous years’ reserves.

Jeremy Ngai, PwC China South Tax Leader said these are good signs compared to what could have been and shows that the Government is proactive when it comes to the future of Hong Kong.

“By positioning Hong Kong as a global gateway, particularly to support Chinese Mainland enterprises’ outbound strategies, and by prioritising talent and investment attraction, the Government is unlocking opportunities and paving the way for a prosperous future," he said.

Advancing Hong Kong’s growth frontier

Rex Ho, PwC Asia Pacific Financial Services Tax Leader, emphasised the need to reinforce Hong Kong’s position as a global financial hub.

He proposed a stamp duty exemption for market intermediaries and tax neutrality on securitisation programs to strengthen the city’s role in capital markets.

Ho also called for tax incentives to promote the internationalisation of the RMB through RMB-denominated products and recommended tax concessions for gold traders to solidify Hong Kong’s standing as a gold trading centre.

Additionally, Ho highlighted the potential for collaboration between Hong Kong Exchanges (HKEx) and Middle Eastern exchanges, positioning Hong Kong as a key trading platform for Islamic financial products and unlocking new growth opportunities in this sector.

Kenneth Wong, PwC Hong Kong’s Tax Controversy Services Leader, has called for enhanced R&D tax incentives to accelerate technological innovation, particularly in AI.

PwC recommended a 150% tax deduction for AI investments, which Wong believes will drive digital transformation across industries.

The firm also proposed expanding incentives for outsourced R&D activities in the Greater Bay Area, supporting cross-border collaboration.

Additionally, PwC advocated for targeted tax breaks for sectors like e-commerce and gaming to strengthen Hong Kong’s competitiveness as an international trade centre and fuel growth in high-tech industries.

Agnes Wong, PwC China South Private Clients and Family Office Tax Leader, has urged the government to strengthen Hong Kong’s position as a leading international shipping centre.

She recommended pairing the promotion of tax concessions with the swift implementation of enhanced maritime tax incentives to boost competitiveness, particularly against jurisdictions like Singapore.

Wong also called for the expedited introduction of proposed half-rate tax concessions for commodity trading, which PwC has long advocated for, to further enhance Hong Kong’s attractiveness as a global trading hub.

Hong Kong as a global gateway

Kenneth Wong called for a half-rate tax concession for regional headquarters engaged in specific activities with adequate economic substance.

He emphasised the importance of expanding Hong Kong’s tax treaty network and deepening international collaboration with key regions such as ASEAN, Latin America, and Belt and Road countries.

Wong highlighted Hong Kong’s role as a "super-connector" between the Chinese Mainland and global markets, arguing that these measures would unlock new opportunities and solidify the city’s position as a competitive international business centre.

Attracting and nurturing talent

Agnes Wong called for reforms to strengthen Hong Kong’s appeal as a prime destination for family offices and high-net-worth individuals.

She suggested raising the cap on residential property for the New Capital Investment Entrant Scheme from $10m to $15m, aligning it with non-residential property investments.

Wong also recommended expediting residency applications for principals of eligible family offices and their families, alongside offering non-tax incentives like child education allowances and cash bonuses.

These measures, she argued, would support the government's goal of attracting and retaining both family office principals and key professionals.

Building a caring, inclusive society

Agnes Wong also called for increased support for working families in Hong Kong. She recommended subsidies for daycare services and tax deductions for hiring domestic helpers and caretakers to ease financial burdens.

Wong also proposed extending tax deductions for elderly residential care to cover costs incurred in the Chinese Mainland, recognising the cross-border caregiving responsibilities many families face.

Additionally, she suggested offering a 100% tax reduction for profits tax, salaries tax, and personal assessment tax, subject to a cap, as a means to alleviate financial pressures on families.

Public finance and AI-enabled efficiency in public services

Jackie Yan, PwC China Economist, urged the Hong Kong Government to maintain strict fiscal discipline despite an expected return to operating surplus.

He recommended staying committed to the Reinforced Fiscal Consolidation Programme to manage structural pressures.

To address a near-term capital account deficit, Yan suggested leveraging Hong Kong’s low government debt to issue diversified bonds, funding major capital projects while supporting long-term fiscal resilience.

He also emphasized the need to prioritise innovation-led growth, particularly by accelerating the development of the Northern Metropolis as a hub for AI, life sciences, and advanced manufacturing.

Additionally, Yan called for broader adoption of AI-enabled efficiency in public services, which would not only enhance Hong Kong’s vibrant AI ecosystem but also deliver significant cost savings and operational improvements.