Whilst this budget should be well received by most of his shipmates, some of the crew may wish their captain had outlined some new vision as to where their ship is headed after the storm has passed.
In his fifth and final budget the Financial Secretary John Tsang retained the role of a prudent captain seeking to safely sail Hong Kong through stormy waters.
Our Budget insights summarizes the key proposals contained in the 2012-13 Budget and our views thereof.
Highlights- To reduce profits tax and salaries tax for 2011-12 by 75%, capped at $12,000
- To raise the following allowances:
• Basic personal allowance / single parent allowance from $108,000 to
$120,000;
• Married person’s allowance from $216,000 to $240,000
• Child allowance and additional one-off child allowance in the year of birth from
$60,000 to $63,000
• Dependent brother / sister allowance from $30,000 to $33,000
• Disabled dependent allowance from $60,000 to $66,000
• Dependent parent / grandparent allowance and additional parent /
grandparent allowance from $36,000 to $38,000 (aged 60 or above) and from $18,000 to $19,000 (aged between 55 to 59) respectively - To raise the maximum tax deduction for elderly residential care expenses from $72,000 to $76,000
- To extend the entitlement period for home loan interest deduction from 10 years to 15 years. Deduction ceiling remains to be $100,000 a year
- To raise the maximum deduction for mandatory contribution retirement schemes from $12,000 to $15,000
- To waive government rates for 2012-13, capped at $2,500 per quarter for each rateable property
- To grant a subsidy of $1,800 to each residential electricity account
- To waive business registration fees for 2012-13
- To abolish capital duty levied on local companies
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Immediate challenges addressed
Whilst this budget should be well received by most of his shipmates, some of the crew may wish their captain had outlined some new vision as to where their ship is headed after the storm has passed.
The middle class in particular will laud the reduction in salaries tax and tax under personal assessment for 2011-12 by 75%, subject to a ceiling of $12,000; the pre-budget hope being a rebate capped at between $6,000 to $8,000.
Similarly, the pre-budget hope was for a waiver of 2012-13 rates subject to a ceiling of $1,500 per quarter; Tsang exceeded this by promising a waiver subject to a ceiling of $2,500 per quarter and increased various tax allowances. All these measures will be welcomed by the middle class.
In addition, social welfare benefit recipients and public housing tenants will be pleased by Tsang’s promise to provide an extra month’s welfare allowances and to pay two months’ rental in respect of public housing units respectively. The further subsidy of $1,800 granted to each residential electricity account will provide relief for all households.
Taken together with other one-off measures, these sweeteners were estimated to cost the government around $30 billion.
One group that may have less to cheer about is the working poor. This group may not earn enough to benefit from the salaries tax sweeteners, and yet may not qualify for the proposed social welfare or public housing benefits.
Aside from the electricity subsidy, Tsang appears to hope that the Community Care Fund will direct the government toward funding appropriate programs together with other measures to strengthen what he referred to as Hong Kong’s “social capital”. Many commentators may take the view that a sum of money directly paid to the working poor (as with the "Scheme $6,000“ announced last year) may provide a more certain means of alleviating any distress.
Overall, this budget should be well received, Tsang acting prudently but at the same time easing the immediate pain faced by large sections of Hong Kong by way of inflation and rising living costs.
Tax competitiveness remains an issue
Whilst this budget will help Hong Kong through the current stormy waters, some commentators might have hoped that Tsang would give some guidance as to where the ship is headed after the storm has passed. Particularly welcome would have been a commitment to undertake a future review of Hong Kong’s tax code and to engage in a meaningful dialogue with tax practitioners and the business community on where improvements might be made to enhance Hong Kong’s tax competitiveness.
Whilst Tsang at least made passing reference to several of the areas where requests have been made to consider possible improvements, he appeared to dismiss the feasibility of the same. In this regard, Tsang cited his concerns that the ideas put forward might narrow Hong Kong’s tax base, result in preferential treatment for certain sectors or otherwise increase the complexity of the Hong Kong’s tax code.
Although relevant commentators would agree on the importance of a simple system, and might note Hong Kong’s lauded position amongst those jurisdictions ranked as enjoying the greatest ease of paying taxes at one of the lowest rates, such commentators might also argue that there is always room for improvement, possibly without added complexity.
In short, only by engaging in dialogue can consensus be reached. We would urge the next captain at the helm to take up the call for dialogue to plot the way ahead after the storm has passed.
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Download PDF for Hong Kong 2012-13 Tax Facts