Hong Kong Needs Tax Changes

March 5, 2014 Taxation in Hong Kong

Hong KongHONG KONG – The cost of social programs in Hong Kong will inevitably rise over the next 30 years, and the government should implement tax changes now to be ready to support the ageing population.

On March 3rd a working group, set up by the government of Hong Kong in July 2013, released its anticipated report on the potential directions for economic and fiscal development of the territory over the next 30 years, and on the tax and administrative changes which need to be implemented to facilitate such plans.

The report indicated that after 2018 the economic output of the special administrative region may begin to diminish as the combined effects of an ageing population and local housing constraints put a limit on the effective workforce, and this process will put additional pressure on already strained government expenditures, which will be aimed heavily aimed at healthcare, housing and other social support programs.

The authors of the report suggested despite the current positive state of tax affairs of Hong Kong, the government needs to take further steps to improve the enforcement and application of present tax laws in order to “…preserve, stabilize, and broaden the revenue base”.

In addition, the government should also reduce its reliance on direct taxes such as salaries, property taxes, and corporate income tax, which currently account for well over 65 percent of all current collections, and a greater focus should be placed on introducing and enforcing “user pays” and “polluter pays” taxes.

Alongside the recommendations on changes to the tax system, the report suggested that the government should start to set aside funds now to cover over the long term the continually growing levels of social and administrative expenditures, while ensuring that the growth of expenditures is contained whenever possible.

Photo by: David Leo Veksler