In this April 9, 2018 photo, a man (right) walks past Tamar Park in Admiralty with the skyline of Hong Kong's financial district. (PHOTO / AFP)
The Hong Kong Special Administrative Region government would see a budget deficit of HK$125.7 billion ($16.1 billion) for the 2022-23 financial year, or more than double that of the government’s deficit forecast of HK$56.3 billion, according to global auditing advisory firm Deloitte China.
The deficit is attributed to the increased proceeds from green bond issuances being offset by dwindled revenues from land sales, stamp duty, and corporate and salaries tax.
Fiscal reserves by the end of March this year would be reduced to HK$831.4 billion, compared to the actual fiscal surplus of HK$957.1 billion for the previous year.
However, Deloitte China said it expected the administration to record a budget surplus of HK$52.3 billion in the next financial year (2023-24), buoyed by higher proceeds from land sales, stamp duty, and corporate and salaries tax.
It estimated that expenditure could be slashed by HK$100 billion, helping the government to restore its budget surplus.
Due to the further relaxation of COVID-19 curbs earlier this year, we believe that, for the coming financial year, the overall economy will recover. As a result, regular revenues, including profit tax, salaries tax and stamp duty, will go up in the next financial year.
Polly Wan, Deloitte China’s tax and business advisory services and business tax partner
“Due to the further relaxation of COVID-19 curbs earlier this year, we believe that, for the coming financial year, the overall economy will recover. As a result, regular revenues, including profit tax, salaries tax and stamp duty, will go up in the next financial year,” said Polly Wan, Deloitte China’s tax and business advisory services and business tax partner.
“Taking into account these factors — the economy’s recovery and higher land sales proceeds — we believe Hong Kong will again see a budget surplus in the coming financial year,” she said on Tuesday.
Regarding relief measures for individuals, Deloitte China proposed offering a tax rebate of 100 percent for the 2022/23 final tax payable for all taxpayers under salaries tax, capped at HK$20,000; raising the maximum deduction for home loan interest to HK$150,000 per year; and allowing a one-off tax cut for stamp duty paid by permanent Hong Kong residents on their first home purchases, capped at HK$200,000.
Wan urged the government to distribute HK$5,000 in consumption vouchers to eligible residents. “If people have a certain amount of cash to spend, obviously, it obviously can have the stimulation on the economy,” she said.
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For businesses, Deloitte China suggested that companies get a tax rebate of 100 percent of the 2022-23 final tax payable for all taxpayers under profit tax, subject to a ceiling of HK$20,000. Surcharges for tax payments by installments should be waived for corporations.
The auditing advisory firm also proposed a host of tax initiatives to strengthen the SAR’s position as an international financial and asset management center; and encourage investments to foster the city’s sustainable development.
It suggested that tax exemption for funds and single family offices should also cover interest income derived from qualifying debt instruments with a view to attracting funds and single family offices to invest more in the bond market. Preferential tax treatment, such as a concessionary tax rate of 8.25 percent, should be provided for fund managers and single family offices in the SAR if certain conditions are met.
Hong Kong should further strive to promote itself as a regional hub, such as by offering a preferential tax rate of 8.25 percent for companies setting up their regional headquarters in the city.
“In the past few years, COVID-19 and travel restrictions might have disrupted regional activities due to be held in Hong Kong,” said Roy Phan, tax and business advisory services and international tax partner at Deloitte China.
“If we can have broader regional headquarter incentives, not just for a treasury center or asset management, but for more generic or broader regional functions to be set up in Hong Kong, that should be a pretty good incentive,” Phan said.
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Deloitte China also suggested that the SAR government provide a designated two-year period for companies to enjoy tax exemption relating to their gains from the disposal of investments, with a holding period of more than five years.
A 150-percent deduction on capital expenditure on corporate digital transformation, including related advisory costs, should also be offered, the firm said.