EY estimates a fiscal surplus of HK$57 billion for 2012/13

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Appendix 2

Summary of the proposals outlined in our press conferences on 27 November 2012 and 21 February 2013

  Proposed fiscal measure (measures quantifiable) As suggested in November 2012 Revised in February 2013
Estimated cost HK$ billion Estimated cost HK$ billion
1 Widen the tax band from HK$40,000 to HK$48,000. 2.0 2.0
2 Allow tax deductions of up to HK$60,000 a year for “Child education expenses”. 1.7 1.7
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$15,000 a year for voluntary contributions to recognized retirement schemes. 0.7 0.7
5 Further extend the home loan interest deductions from 15 years to 20 years. 0.5 0.5
6 Waive rates for 2013/14, subject to a ceiling of HK$2,500 per quarter for each rateable property. 11.8 11.8
7 Cap the stamp duty charged at HK$100 for first-time home buyers for properties valued at not more than HK$3 million; and raise the stamp duty on property valued over HK$20 million from 4.25% to 4.5%. --- ---
8* Offer a one-off tax rebate of 75% of salaries tax and tax under personal assessment for 2012/13, subject to a cap of HK$18,000. --- 13.4
9 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%.  1.0 1.0
10* Grant each residential electricity account a subsidy of HK$1,800 with a further subsidy of HK$600 if the total usage for the 6 months ending 30 September 2013 is at least 5% less than the same period in 2012. -- 6.0
11* Issue the third batch of iBond. --- ---
12 Waive business registration fees for a year. 1.9 1.9
13 Waive licence fees for a year. 1.0 1.0
14* Offer a one-off tax rebate of 75% of profits tax for 2012/13, subject to a cap of HK$18,000. -- 1.8
Total 21.8 43.0
* Proposed fiscal measure newly added on 21 February 2013 press conference.

Proposed fiscal measures (measures not quantifiable)
15 Allow immediate tax write-off of small assets valued at HK$30,000 or below.
16 The Chief Executive’s proposed inter-department agency on economic development (i.e., the newly set up Economic Development Commission) should devise more tax incentives to targeted industries.
17 Allow a super tax deduction of 200% for qualifying research and development expenditure for projects not qualifying for rebates under the “R&D Cash Rebate Scheme”.
18 Allow a super tax deduction of 150% for employee costs paid to accredited training providers.
19 Set up a special unit to conduct a comprehensive review of our current tax laws.
20 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.
21 Raise the duty on motor use leaded petrol.
22 Increase first registration tax concession for environment-friendly commercial vehicles and environment-friendly petrol private cars.

 

Hong Kong, 21 February 2013 – EY estimates that 2012/13 will return a budget surplus of HK$57 billion, instead of a deficit of HK$3.4 billion as forecast by the government in February 2012.  Based on the government’s quarterly accounts as at 31 December 2012, EY notes that the fiscal position for 2012/13 has improved rapidly since October 2012, with record level of revenues being collected in both November and December 2012.  This bodes well for the estimate of the total tax revenue receipts collected for 2012/13, the record collections in November and December in 2012 yet to be supplemented by the substantial tax revenues which will be collected in the last quarter of the fiscal year. In addition, the government has successfully sold over 20 pieces of land during the fiscal year and collected higher than expected stamp duty from active stock and property markets. These receipts, together with a level of expenditure expected to be lower than that originally estimated, will turn the originally budgeted deficit into a surplus for 2012/13.

The expected budget surplus for 2012/13 will propel Hong Kong’s fiscal reserves to HK$726.1 billion by the end of 31 March 2013, amounting to 38.5% of Hong Kong’s estimated 2012 gross domestic product (GDP).  Combining such a level of fiscal reserves with the net accumulated surplus on the Exchange Fund amounting to HK$623.7 billion as at 31 December 2012 (net of the amount required for a 100% backing of the Hong Kong currency), will result in Hong Kong’s effective free fiscal reserves totaling around HK$1.3 trillion. Such a figure will represent 71.5% of the GDP of Hong Kong or approximately 43 months of government expenditure. 

Given the current uncertain economic outlook and the inflationary pressures which quantitative easing measures adopted by various countries may cause, EY agrees with earlier suggestions made by the International Monetary Fund that the coming budget should continue to be tilted toward supporting growth whilst providing some modest temporary relief measures.  With the government sitting on large fiscal reserves, EY proposes to further enhance the one-off relief measures it suggested in late November aimed at relieving the tax burdens and economic hardships faced by individuals and businesses, especially small and medium enterprises. 

These enhanced measures proposed by EY include: (i) granting a tax rebate of 75% of salaries tax and tax under personal assessment for 2012/13, subject to a cap of HK$18,000; (ii) issuing the third batch of iBond for subscription by Hong Kong residents; (iii) granting each residential electricity account a subsidy of HK$1,800 with a further subsidy of HK$600 if the total usage for the 6 months ending 30 September 2013 is at least 5% less than the same period in 2012; and (iv) granting a tax rebate of 75% of profits tax for 2012/13, subject to a cap of HK$18,000. It is estimated that the above proposed measures will cost the government about HK$21.2 billion in revenue forgone.

On the long-term fiscal measures to attract foreign investment and enhance the competitiveness of Hong Kong’s products and services, EY would like the government to seriously consider granting tax incentives to regional headquarters and research and development projects etc.


Appendix 1: EY revised estimate of 2012/13 fiscal position


Appendix 2: Summary of the proposals outlined in our press conferences on 27 November 2012 and 21 February 2013

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