The Financial Secretary, Paul Chan, released a new Budget this Wednesday (February 23).
In his speech, he proposed to revise the rates system in Hong Kong, and proposed that in the future, residential rates will only be reduced for owner-occupied properties, and at the same time, a progressive calculation system will be introduced, and a higher proportion of residential properties with a chargeable rental value of more than 550,000 yuan will be levied. Rates, in order to reflect the principle of "the able-bodied pay more", it is estimated that about 42,000 units will be affected.
As the relevant amendments involve major changes to the information technology system of the Rating and Valuation Department, the Government expects to implement the above-mentioned amendment proposals in stages.
The rate concession limit for owner-occupier properties will be implemented before 2023/24, and the progressive residential rate calculation system will not be introduced until 2024/25.
For the time being, the authority proposes to take the chargeable rent value of 550,000 yuan and 800,000 yuan as the cut-off point, and to levy 5%, 8% and 12% of the three-tier rates respectively. In the future, the Legislative Council Panel on Financial Affairs will be consulted on the details and timetable. .
Chen Maobo estimates that middle-class housing estates such as Kornhill Garden will not be affected by progressive rates.
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Vacancy and VAT revisited
As Chen Maobo said in his speech, the new wave of the epidemic has put Hong Kong enterprises and citizens generally still facing financial pressure. Therefore, "it is still not appropriate to adjust the profits tax and salaries tax rates for the time being", but rates are originally a kind of tax. This time, the government dares to shake the 5% rates collection rate, which has a longer history than the current 15% standard rate.
In addition to the rates reform, this Budget also set up a tax deduction project for residential rental expenses of $100,000, hoping to reduce the burden of salaries tax and personal assessment taxpayers who do not own any residential properties .
Relevant arrangements can be used as the starting point for future tax reform, and further consider the previously discussed taxes such as property vacancy tax and asset value-added tax, which can better achieve fair distribution, and even take into account the effects of regulating the property market and increasing inventory.
Carrie Lam proposed a vacancy tax on first-hand properties in June 2018, but it hit the rocks amid opposition from the business community.
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Profits tax also has room for progress
On the other hand, with the imminent implementation of the world's lowest tax rate, the Hong Kong government should take the opportunity to review the profits tax system in its entirety, and introduce a progressive calculation system like rates.
In fact, in recent years, the government has introduced profits tax relief measures almost constantly. Since 2018, it has introduced the so-called "two-tier system" to reduce the profits tax rate of the first $2 million of assessable profits of corporations and unincorporated businesses by half. The calculation of the effective tax rate has become more complicated, and the global minimum tax rate is precisely the effective tax rate as the calculation threshold. Therefore, replacing the above arrangement with a progressive system is truly in line with the simple tax system principle.
Between 2006 and 2007, the Hong Kong government once conducted a public consultation on tax reform, and the final report opposed the introduction of progressive profits tax, one of the reasons that "this approach runs counter to the current international trend of reducing direct tax." However, today's international tax increase trend is obviously different from that of the year. The rationale is the opposite.
Moreover, this Budget revised the budget result of the previous fiscal year from deficit to surplus. One of the reasons is that profits tax revenue was $32.4 billion higher than expected. It also shows from the side that there is room for local profits tax increase in Hong Kong.
Chen Maobo proposed to find new growth points to increase government revenue in his "Budget" speech from the previous year. However, more than two years have clearly been enough for the implementation of the rate reform. What is the time to wait for an in-depth discussion?
No matter what to do, the most "appropriate" time is always now.
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