Hong Kong’s latest budget includes a series of tax cuts, a practice that has become common in recent years. But, despite the fanfare of the announcement, the cuts are not as generous as last year and, for many, amount to tax increases.
Under the 2019-20 Budget announced on Feb. 27, the salaries tax and tax under personal assessment will be reduced by 75 percent with a cap at $20,000. The same goes for profits tax, which will be slashed by 75 percent and subject to a ceiling of $20,000. Last year’s Budget provided for a higher cap on the amount subject to reductions of $30,000. So, this time around, many taxpayers could pay up to $10,000 more on the same income.
This year’s budget also waives rates to a ceiling of $1,500 per quarter for each property. The cap last year was much higher at $2,500.
The government’s surplus of $58.7 billion this year is much smaller than the $138 billion surplus last year.
When is a tax hike not a tax hike
“Despite the fact that we had $100 billion plus fiscal surplus last year and we’ve got a projected multi billion surplus this year, there’s a tax increase,” says Mr Nicholas Sallnow-Smith, Chairman of the Lion Rock Institute of Hong Kong, a think tank.
“Of course, it is amusing as always that when the government decides not to take as much from this as they did previously, it’s called a rebate,” he adds.
“It’s like a thief taking $10 dollars less [than last time] and saying that he’s giving you $10 dollars anyway,” Mr Sallnow-Smith says.
Not only have tax cuts shrank but so have other relief measures for those in need.
People that fall under Hong Kong’s social security net will receive one month’s worth of extra allowances. This applies to recipients of the Comprehensive Social Security Assistance payments, old-age allowance and disability allowance for the poor and elderly. Last year, they were given two extra months. That means that this year they will receive less money.
E&Y: More could be done for taxpayers
Ernst & Young said the tax reductions were a “targeted approach primarily intended to benefit middle- and lower-income earners.” Still, the firm believes more could be done to widen benefits for taxpayers.
“In the view that taxpayers nowadays often reside separately from their dependent parents or grandparents due to various reasons such as small living space, or dependents’ relocation to mainland China, particularly in the Greater Bay Area, we hope that the Financial Secretary will also consider relaxing the conditions for claiming dependent parent and grandparent allowance,” says Mr Robin Choi, People Advisory Services Partner at Ernst & Young Tax Services Limited.
He adds that the firm proposes removing the differentiation between basic provisions and add-ons.
Another of the Big Four firms, PwC, believes the Budget is “one of caution” and is forward-looking.
“[It reflects] a commitment to long-term investment and direct spending, rather than one-off relief measures and eye-catching giveaways,” PwC said in a commentary.
PwC also expects a greater focus on tax measures and more resources to develop them, as the Tax Policy Unit will report directly to the Financial Secretary’s Office rather than being under the Financial Services and Treasury Bureau.
Hong Kong’s Financial Secretary Mr Paul Chan said during his budget speech last Wednesday that the government will continue to introduce tax measures to strategically “enhance our competitiveness and stabilise our revenue”.
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