A comprehensive budget with diverse initiatives, but housing measures fewer than expected
Published: 25 February 2015
The Financial Secretary delivered a comprehensive budget with wide-ranging tax measures and initiatives to address different social and economic challenges, reinforcing Hong Kong's long-term competiveness. Despite the government’s commitment to optimising land utilisation and increasing land supply, there were fewer-than-expected measures to help mitigate the housing burden faced by citizens.
The budget set aside HK$ 34 billion in relief measures, including profits and salaries tax reductions, a rates waiver, one-off extra allowances for the elderly and disabled, rental payments for low income public housing tenants, and support for small and medium enterprises. There were also short-term measures to support business sectors affected by recent political bickering. The proposal to increase child allowance under personal tax assessments was expected to allay pressure for the middle class.
“We are pleased that the government is aware of the unstable economic conditions and measures were proposed to promote a better social and operating environment for citizens and businesses. These measures were designed to respond to some public expectations and overall the budget is compassionate and comprehensive,” said Mrs Yvonne Law, Partner, Clients, Industries and Markets, Deloitte China. She added that the government is also determined to achieve diversified economic development through promoting technology start-ups, social enterprises and boosting various creative industries.
The budget continued to include measures to support the financial services sector, a pivotal pillar for the local economy. To achieve higher connectivity with the Mainland's capital market, an action plan was laid down to strengthen offshore Renminbi business in Hong Kong and to further increase the quota for RMB Qualified Foreign Institutional Investors (RQFII), said Mr. Davy Yun, Tax Partner, Deloitte China.
“The granting of profits tax exemptions, already available to offshore funds, is expected to promote the development of private equity funds. On the other hand, there were also proposals to relax the tax deduction criteria for interest expense for corporate treasury centres and to reduce profits tax for specified treasure activities by 50 percent. These will attract multinational and Mainland enterprises to manage their global and regional treasure activities in Hong Kong,” he noted.
“The government should also receive a warm applause for its vision to tackle talent shortage and an aging population, which are detrimental to the competitiveness of the local economy. Measures were proposed to nurture talent for insurance and wealth management services and to train more skilled workers for the construction sector. The budget earmarked HK$50 billion for providing better retirement protection for the elderly in need,” Mrs. Law said.
To further raise local attractiveness to foreign business, Deloitte suggests that the government could have offered a specific profits tax rate of 8.25 percent (currently 16.5 percent) for overseas companies establishing their regional headquarters in Hong Kong. While there were specific tax measures for the financial services industry, the government may also consider reducing the corporate tax rate for limited companies from 16.5 percent to 16 percent or introducing a two tiered taxation system where a lower tax rate will be imposed on the first pre-set level of assessable profits.
On the housing front, Deloitte believes that the government could have done more to help people cope with mortgage and rental burdens. For instance, Deloitte had proposed to allow a deduction claim for mortgage repayment, rental expenses and stamp duty. There is also ongoing expectation for the government to curb the rise in property prices.
The government has revised its budget surplus forecast to HK$63.8 billion for the fiscal year 2014-2015, versus the Deloitte forecast of HK$60.9 billion. Deloitte is in support of the government’s preemptive measures to avoid structural deficits for the future. “As a responsible government, it is necessary to adhere to fiscal prudence. Hong Kong has been criticized for having a narrow tax base and one of the options is to re-consider introducing a Goods and Services Tax. It is also a constructive idea to establish a Future Fund dedicated to long term investments for higher returns,” said Mr. Alfred Chan, Tax Director, Deloitte China.