Ernst & Young estimates a fiscal surplus of HK$53 billion - HK$58 billion for 2011/12
Hong Kong, 27 January 2012 – The financial results for the eight months ended 30 November 2011 released by the government showed a surplus of HK$21.2 billion. This is the second highest level of budget surplus for the first 8 months achieved in the past 10 years. In the last 4 months of a fiscal year, the government would, on average, generate a surplus of approximately HK$35 billion. This is due to the fact that the months of December and January are periods of peak tax collection. Ernst & Young now estimates that the budget surplus for 2011/12 will be HK$53 – HK$58 billion. Record income from land sales and additional stamp duty collected in the first half of 2011/12 from an active property market and stock transactions are major additional revenue contributors. This together with a level of expenditure likely to be lower than that originally estimated will convert the originally budgeted deficit of HK$8.5 billion to the large fiscal surplus now estimated for the year.
This year's expected budget surplus will propel Hong Kong’s fiscal reserves to a level of between HK$648.4 billion and HK$653.4 billion by the end of 31 March 2012, amounting to 35.4% to 35.7% of Hong Kong’s estimated 2011 gross domestic product (GDP). Adding this level of fiscal reserves to the net accumulated surplus on the Exchange Fund amounting to HK$567.9 billion as at 31 December 2011 (net of the amount required for a 100% backing of the Hong Kong currency) will result in Hong Kong’s effective free fiscal reserves totalling around HK$1.2 trillion. Such a figure will represent 66.6% of the GDP of Hong Kong or approximately 39 months of government expenditure.
Given the global economic uncertainties facing Hong Kong in 2012, Ernst & Young proposes that the government should consider using Hong Kong’s large fiscal reserves to offer more generous relief measures to both businesses and individuals. In this regard, Ernst & Young proposes to further enhance the one-off relief measures it suggested in late November to relieve the tax burdens and economic hardships of individuals and businesses, in particular small and medium enterprises. These measures include: (i) granting a tax rebate of 75% of salaries tax and tax under personal assessment for 2011/12, subject to a cap of HK$10,000 (raised from Ernst & Young’s previous proposal of HK$6,000); (ii) waiving rates for 2012/13, subject to a ceiling of HK$2,000 (raised from Ernst & Young’s previous proposal of HK$1,500) per quarter for each rateable unit; and (iii) granting each residential electricity account a subsidy of HK$1,800. It is estimated that the above proposed measures will cost the government about HK$25.5 billion in revenue forgone.
More specifically for businesses, Ernst & Young proposes (i) waiving business registration fees for a year; (ii) waiving business licence fees for a year in respect of those sectors that are more vulnerable in an economic downturn, e.g., travel, catering and entertainment; (iii) reducing sewage charges and trade effluent surcharges for a year; and (iv) providing a 20% rental concession for government properties and short term tenancies of government land for the first 6 months of 2012/13. It is estimated that the above proposed measures will cost the government HK$4 billion in revenue forgone.
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Appendix
Summary of our proposals made in press conference on 29 November 2011 and 27 January 2012
| Proposed fiscal measures | Made in November 2011 | Revised in January 2012 |
Estimated cost HK$ billion | Estimated cost HK$ billion |
1 | Widen the tax band from HK$40,000 to HK$48,000. | 1.8 | 1.8 |
2 | Allow tax deductions of up to HK$60,000 a year for “Child education expenses”. | 1.6 | 1.6 |
3 | Allow tax deductions of up to HK$20,000 a year for private medical insurance premium payments for individuals (including those for spouse and children). | 1.2 | 1.2 |
4 | Allow tax deductions of up to HK$12,000 a year for voluntary contributions to recognized retirement schemes. | 0.5 | 0.5 |
5 | Offer a one-off tax rebate of 75% of salaries tax and tax under personal assessment for 2011/12, subject to a cap of HK$10,000 (revised from HK$6,000). | 5.3 | 8.8 |
6 | Waive rates for 2012/13, subject to a ceiling of HK$2,000 (revised from HK$1,500) per quarter for each rateable property. | 9.9 | 12.0 |
7 | Introduce a two-tier tax system – for companies with turnover below HK$5 million, the first HK$300,000 or less assessable profits are taxed at a lower rate of 10%. In addition, reduce the corporate tax rate of 16.5% to 16%. | 2.8 | 2.8 |
8 | Grant each residential electricity account a subsidy of HK$1,800. | -- | 4.7 |
9 | Waive business registration fees for a year. | -- | 2.0 |
10 | Waive business licence fees for a year in respect of those sectors that are more vulnerable in an economic downturn, e.g., travel, catering and entertainment. | -- | 1.0 |
11 | Reduce sewage charges and trade effluent surcharges for a year. | -- | 0.8 |
12 | Provide a 20% rental concession for government properties and short term tenancies of government land for the first 6 months of 2012/13. | -- | 0.2 |
| Total | 23.1 | 37.4 |
Proposed fiscal measures (measures not quantifiable) |
13 | Extend the dependent parent / grandparent allowances to parents / grandparents living in Guangdong. |
14 | Allow tax deductions of a maximum of HK$200,000 a year for home loan mortgage principal / home rental payments for any 10 years. Eligibility conditions: Taxpayers with annual household income of not more than HK$720,000 and the qualifying home should be less than HK$6 million or the annual ratetable value of a rental flat is not more than HK$200,000. |
15 | Introduce regional headquarters tax incentives. |
16 | Allow a super tax deduction of 150% for employee costs paid to accredited training providers. |
17 | Allow a super tax deduction of 150% for qualifying research and development expenditure for projects not qualifying for rebates under the “R&D Cash Rebate Scheme”. |
18 | Set up a special unit to conduct a comprehensive review of our current tax laws. |
19 | Allocate more resources to expedite the expansion of Hong Kong’s tax treaty network and undertake a review of how the provisions contained in tax treaties interact with our domestic tax laws. |
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