EY 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. EY 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, EY 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, EY 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 EY’s previous proposal of HK$6,000); (ii) waiving rates for 2012/13, subject to a ceiling of HK$2,000 (raised from EY’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, EY 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$4 billion in revenue forgone.
Summary of our proposals made in press conference on 29 November 2011 and 27 January 2012
Proposed fiscal measures
Made in November 2011
Revised in January 2012
Estimated cost HK$ billion
Estimated cost HK$ billion
Widen the tax band from HK$40,000 to HK$48,000.
Allow tax deductions of up to HK$60,000 a year for “Child education expenses”.
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).
Allow tax deductions of up to HK$12,000 a year for voluntary contributions to recognized retirement schemes.
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).
Waive rates for 2012/13, subject to a ceiling of HK$2,000 (revised from HK$1,500) per quarter for each rateable property.
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%.
Grant each residential electricity account a subsidy of HK$1,800.
Waive business registration fees for a year.
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.
Reduce sewage charges and trade effluent surcharges for a year.
Provide a 20% rental concession for government properties and short term tenancies of government land for the first 6 months of 2012/13.
Proposed fiscal measures (measures not quantifiable)
Extend the dependent parent / grandparent allowances to parents / grandparents living in Guangdong.
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.
Introduce regional headquarters tax incentives.
Allow a super tax deduction of 150% for employee costs paid to accredited training providers.
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”.
Set up a special unit to conduct a comprehensive review of our current tax laws.
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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