EY’s comments on Budget 2019-20

Hong Kong, 27 February 2019

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Agnes Chan, Managing Partner, Hong Kong and Macau at EY, says: “Based on the revised estimates announced in today’s budget, the Government will record a surplus of HK$58.7 billion for the financial year 2018-19, thereby propelling Hong Kong’s fiscal reserves to HK$1,161.6 billion by the end of 31 March 2019. In view of the expected bumpy road ahead due to increased economic and political volatility, and given the enviable level of fiscal reserves, the Financial Secretary has rightly handed out an array of one-off relief measures totaling HK$42.9 billion. The proposed measures would help alleviate the tax burden of individuals and enterprises and help those within the social security net to better prepare for the uncertainties ahead.”

Supporting our people and households

Robin Choi, People Advisory Services Partner at Ernst & Young Tax Services Limited, says: “We are glad that the Financial Secretary accepted our proposal and introduced a legislative bill last December to grant tax deduction for deferred annuity premiums and voluntary contributions to the mandatory provident fund. This measure would encourage taxpayers to make voluntary savings for their retirement.”

Robin Choi adds: “In the view that taxpayers nowadays often reside separately from their dependent parents or grandparents due to various reasons such as small living space, or dependents’ relocation to mainland China, particularly in the Greater Bay Area, we hope that the Financial Secretary will, at an appropriate time in the future, also consider adopting our proposal to relax the conditions for claiming dependent parent and grandparent allowance (DPGA). In this regard, we propose removing the differentiation between basic and additional DPGA. So long as a dependent is aged 55 or above, ordinarily resides in Hong Kong or the GBA, and is maintained by a taxpayer in a relevant year of assessment, the full amount of DPGA would be granted to the taxpayer.”

75% reduction in salaries tax and tax under personal assessment, with a HK$20,000 cap

Robin Choi says: “The proposed 75% reduction for the 2018-19 final tax capped at HK$20,000 is a targeted approach primarily intended to benefit middle- and lower-income earners.”

Stimulating innovation and creativity

Paul Ho, Financial Services Tax and Business Advisory Services Partner at Ernst & Young Tax Services Limited, says: “We welcome the enactment of the new law that grants enhanced tax deductions for qualifying research and development (R&D) expenditures, which is aimed at encouraging the private sector to increase its investment in R&D. To further unleash Hong Kong’s innovative potential to promote economic growth, we suggest the Financial Secretary broaden the definition of R&D to cover subcontracted activities, as well as introduce a preferential tax regime for income derived from the use of certain intellectual property rights such as patents.”

Seizing growth opportunities brought about by the Belt and Road and the Greater Bay Area initiatives

Paul Ho says: “EY welcomes the announcement of a task force to be set up by the Hong Kong Maritime and Port Board to study tax and other measures, with a view to developing Hong Kong as a ship leasing center in the Asia-Pacific region. To ensure that Hong Kong’s tax incentives are in line with our key competitors in the region, we hope that the proposed tax incentives would be comprehensive to cover not only the ship leasing business, but also shipping-related services such as ship management, brokerage and financing.”

Further consolidating Hong Kong’s asset management industry

Paul Ho says: “EY welcomes the passage of the new law that grants profits tax exemption to all privately-offered funds, regardless of their residence, size and type. Nonetheless, many bond funds may not be able to benefit from the new tax exemption regime due to the technicality that holding debt instruments to earn interest income would not be considered as a qualifying transaction. Given the growing popularity of bond funds among investors, we hope the Financial Secretary will review this technical issue at an appropriate time.”

Business registration fee waiver and 75% reduction in profits tax, with a HK$20,000 cap

Paul Ho adds: “The proposed business registration fee waiver and 75% profits tax reduction capped at HK$20,000 would be most welcomed by SMEs in terms of easing cash-flow pressure and helping them to better handle the challenges ahead.”

-Ends-

Notes to Editors

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This press release is issued by the EY China practice, a part of the Ernst & Young global network.