Hong Kong Reduces Taxes To Support Growth

By ExpatBriefing.com Editorial 02 February, 2012

Hong Kong’s Financial Secretary, John C Tsang, has unveiled a 2012/13 Budget which proposes a wide range of tax concessions aimed at supporting businesses and individuals, who face a possible global economic slowdown.

The Financial Secretary said Hong Kong's economy grew by 5% in 2011, but forecast gross domestic product (GDP) growth to slow to between 1% and 3% this year, mainly due to the sluggish European and US economies.

He therefore introduced measures worth nearly HKD80bn (USD10.3bn) in the Budget “to better prepare our people for the difficult time ahead. This is a strong package of measures and would help stimulate the economy by 1.5% in 2012."

Tsang gave out the revised estimate for government revenue in 2011-12 as HKD433.1bn billion, HKD63.4bn higher than the original estimate. With the impressive economic performance last year, revenue from profits tax and salaries tax increased by nearly HKD30bn compared to the original estimate. For government expenditure, the revised estimate is HKD366.4bn in the last fiscal year, so that an overall surplus of HKD66.7bn is expected, equivalent to 3.5% of GDP.

Government expenditure is estimated to reach HKD393.7bn for 2012–13, an increase of 7% compared with the revised estimate for 2011–12 and some 21.4% of GDP, while total government revenue will be HKD390.3bn (with earnings and profits tax, estimated at HKD161.6bn, remaining Hong Kong’s major source of revenue).

Hong Kong will, consequently, expect a small fiscal deficit in the coming fiscal year, but revenue reserves are still estimated to reach HKD658.7bn by end-March 2013, representing approximately 34% of GDP, or equivalent to 20 months of government expenditure.

The relief measures for Hong Kong’s taxpayers include a reduction in salaries tax and tax under personal assessment for the 2011-12 assessment year by 75%, subject to a ceiling of HKD12,000. This should benefit 1.5m taxpayers and cost the government HKD8.9bn.

In addition, the government will grant each residential electricity account a subsidy of HKD1,800, to benefit 2.5m households; waive rates for 2012-13, subject to a ceiling of HKD2,500 per quarter for each rateable property; provide an extra one month allowance to recipients of Comprehensive Social Security Assistance (CSSA), Old Age Allowance and Disability Allowance; and pay two months' rent for public housing tenants.

To ease the financial burden on Hong Kong’s middle class, the Financial Secretary proposed to raise tax allowances, such that, for example, the basic tax allowance and the single parent allowance will be increased from HKD108,000 to HKD120,000; and the married person's allowance will rise from HKD216,000 to HKD240,000. The child allowance will be increased from the current HKD60,000 to HKD63,000 for each child.

Tsang also rolled out a series of initiatives to support small and medium sized enterprises (SMEs). He proposed to enhance substantially the existing SME Financing Guarantee Scheme by introducing a number of concessionary measures, including an increase to the maximum loan guarantee ratio to 80%, for which the Government will provide a guarantee commitment of HKD100bn. Accounting for the anticipated default rate, the estimated government expenditure for this initiative will be about HKD11bn.

"The increase in loan guarantee ratio under the SME Financing Guarantee Scheme will enhance lending institutions' confidence in offering loans to SMEs to meet their financing needs," he added.

To help reduce operating costs, enhance competitiveness and preserve jobs, the Financial Secretary also proposed to waive business registration fees for 2012-13 and abolish capital duty levied on local companies to encourage investors to set up companies in Hong Kong.

"Underpinned by the strategy of supporting enterprises to preserve employment and promoting economic development to protect people's livelihood, these measures will tide enterprises over difficult times, preserve employment and increase people's disposable cash at hand," Tsang concluded.

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Tags: Individuals | Expatriates | Tax | Economics | Business | Fiscal Policy | Gross Domestic Product (GDP) | Budget | Corporation Tax | Tax Thresholds | Fees | Offshore | Small And Medium-sized Enterprises (SME) | Social Security | Hong Kong | Revenue Statistics | Individual Income Tax |


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