KPMG forecasts a HK budget surplus of HKD65.5 billion
KPMG forecasts a HK budget surplus of HKD65.5 billion
Urges the Government to review tax system to enhance Hong Kong’s competitiveness
KPMG forecasts the Hong Kong SAR Government will record a consolidated budget surplus of HKD65.5 billion for the fiscal year 2014/15, higher than the Government’s initial estimate of HKD9.1 billion, which is driven mainly by higher-than-expected revenues from stamp duty and profits tax. The Government will record a surplus of HKD38.5 billion for the year 2014/15 even after the transfer of investment returns of HKD27 billion into the new Housing Reserve Fund.
KPMG also recently received feedback from 398 senior Hong Kong-based business executives on a survey of their expectations of the upcoming budget. While Hong Kong’s financial position looks strong, respondents warn that high operating costs and talent shortage are adversely affecting the business environment. Maintaining competitiveness is a key issue for the Government to tackle in the upcoming budget, the survey finds.
Over 40 percent of respondents indicated competitiveness as a top priority for the Government, exceeding livelihood and housing issues (31 percent). In terms of a potential structural deficit, 53 percent of respondents said the Government should focus on stimulating economic growth to increase tax revenues.
Ayesha Lau, Partner-in-Charge of Hong Kong Tax, KPMG China, says: ”In terms of the upcoming budget, the demand from local business community is clear. It is important to enhance Hong Kong's competitiveness so as to maintain investors' confidence and generate sustainable economic growth."
To increase Hong Kong’s competitiveness, KPMG proposes the Government introduce tax incentives for corporates setting up headquarters or service companies in Hong Kong and reduce Profits Tax rate for SMEs. The above proposals are welcomed by the business community as found by the survey.
The Chief Executive also highlighted in the Policy Address his aims to provide a strategic environment for innovation and technology development. KPMG therefore proposes the Government provide super tax deduction for research and development (R&D) expenditure. This will help to induce corporate investment in R&D and enhance Hong Kong’s long term competiveness and sustainability.
In anticipation of the challenges that may arise from the ageing population and declining labour force, the Government is seeking ways to encourage women to rejoin the workforce. KPMG proposes the Government offer tax incentives such as working mother allowance and caregiver allowance. Separately, aged income earner allowance can also be introduced to encourage the elderly to remain in the workforce. To alleviate the financial burden of the younger generation, KPMG proposes the Government introduce an allowance for newly weds as well as favourable stamp duty rates for Hong Kong residents purchasing a first residential property for their own use.
Lau adds: “In addition to offering tax incentives, Hong Kong also needs to optimise the tax system, such as enhancing the certainty and transparency on automatic exchange of information to increase competitiveness and to keep up with international tax development. This includes increasing efforts on combating tax avoidance and implementing the OECD's Base Erosion and Profit Shifting action plan.”
There are uncertainties faced by businesses on their tax positions locally and abroad under the current Hong Kong's territorial taxation system, which is damaging Hong Kong's competitiveness. KPMG therefore urges the Government to review the current tax system so as to increase certainty, and cope with the international trend to combat "double non-taxation".
Lau concludes: “Revenues from tax collection, investment income and land sales fluctuate severely with the global economic situation. Despite holding around HKD800 billion reserves in hand, the Government should continue to pursue a prudent approach and spend its money wisely to improve Hong Kong's competitiveness.”
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About the survey
KPMG China conducted a survey in December 2014 analyzing the Hong Kong business community’s expectations of the Hong Kong budget 2015/16. A total of 398 senior business executives participated in the survey.
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