Hong Kong Budget Provides Less In Handouts
Friday, March 1, 2013
Despite the continued slow growth in Hong Kong’s economy, Financial Secretary
John Tsang produced measures to help those on lower incomes, middle-class taxpayers
and small- and medium-sized enterprises (SMEs), amounting to only HKD33bn (USD4.25bn)
in his 2013/14 Budget, compared to HKD80bn last year.
The Financial Secretary said Hong Kong's gross domestic product (GDP) growth
for 2012 as a whole was only 1.4%, much lower than the average 4.5% growth
rate over the past ten years. While he forecast a modest improvement in the
economy in 2013, with annual GDP growth of 1.5% to 3.5%, that could be knocked
off course by, what he called, “wars on three fronts, namely 'currency',
'trade' and 'geopolitics'. As a highly open and small economy, Hong Kong will
be impacted by the development of these wars."
The Government is therefore to adhere to fiscal discipline, without the greater
tax breaks that had been requested by some commentators, maintaining Hong Kong’s
revenue ratio at about 20% of GDP and its revenue reserves at approximately
34% of GDP.
The revised estimate for government revenue in 2012/13 is HKD445.5bn, HKD55.2bn
higher than the original estimate – largely due to increases in earnings
and profits tax, as well as in stamp duty and other property revenue due to
the buoyant real estate market. For government expenditure, the revised estimate
is HKD380.6bn in the last fiscal year, so that an overall surplus of HKD64.9bn
Total government expenditure is budgeted to reach HKD440bn for 2013/14, an
increase of 15.6% compared with the revised estimate for 2012/13 and some 21.7%
of GDP, while total government revenue will be HKD435.1bn (with earnings and
profits tax, estimated at HKD189.4bn, remaining Hong Kong’s major source
Hong Kong will, consequently, expect a small fiscal deficit in the coming fiscal
year, but revenue reserves are still estimated to reach HKD729.1bn by end-March
2014, the equivalent to 20 months of government expenditure.
In his Budget, Tsang proposed eleven one-off measures, including waiving rates
for 2013/14 subject to a ceiling of HKD1,500 per quarter for each rateable property,
so that around 75% of properties will be subject to no rates in the year; granting
each residential electricity account a subsidy of HKD1,800; and paying two months'
rent for public housing tenants.
Salaries tax and tax under personal assessment for 2012/13 (and payable this
year) will be reduced by 75%, subject to a ceiling of HKD10,000; the basic and
additional child allowances will be increased from the current HKD63,000 to
HKD70,000 for each child; and the deduction ceiling for self-education expenses
will be raised from HKD60,000 to HKD80,000.
For SMEs, "In the face of the unstable external economic environment
and increasing operating costs,” he will waive the business registration
fees for 2013/14, to benefit 1.2m businesses; and reduce profits tax for 2012-13
by 75%, subject to a ceiling of HKD10,000.
"SMEs are an important pillar of Hong Kong’s economy and employment
market, Tsang added. “They form the majority of enterprises in Hong Kong
and employ over 1.2m people or half the private-sector workforce. In the face
of persistently weak export markets and a challenging external environment,
we shall assist SMEs to help them raise capital and tap new markets."
Tsang also outlined measures to aid Hong Kong’s financial sector. With
the total value of fund assets under management in Hong Kong at more than HKD9
trillion, ranking second in Asia, he promised to provide a clear and competitive
tax environment with a view to attracting more funds of various types to base
in Hong Kong, to broaden the variety and scope of its fund business. He pointed
out that Hong Kong-domiciled funds will drive demand for professional services,
such as fund management and investment advice as well as legal and accounting
To attract more private equity funds to domicile in Hong Kong, he proposed
to extend the profits tax exemption for offshore funds to include transactions
in private companies, which are incorporated or registered outside Hong Kong
and do not hold any Hong Kong properties nor carry out any business in Hong
In addition, while investment funds established in Hong Kong can only take
the form of trusts at the moment, he believed that, as an international financial
center, Hong Kong should provide a more flexible business environment for the
industry to meet market demand. To attract more traditional mutual funds and
hedge funds to domicile in Hong Kong, the Government is therefore considering
legislative amendments to introduce the open-ended investment company.
To expand the distribution network of Hong Kong's fund industry, the Securities
and Futures Commission is also studying with Mainland China’s authorities
an arrangement for the mutual recognition of funds. The arrangement could attract
more funds to establish in Hong Kong and foster the development of those professional
sectors engaged in the registration, investment management and sales of funds.
Finally, as the Government has seen that many large enterprises in Asia are
keen to run their own captive insurance companies to insure against their business
risks, and to attract more enterprises to form such captive insurance companies
in Hong Kong, Tsang proposed to reduce the profits tax on the offshore insurance
business of captive insurance companies, such that they will enjoy the same
tax concessions as those currently applicable to reinsurance companies.