EY comments on Hong Kong Budget 2022-23 — Hong Kong’s financial positioning and relief measures

Agnes Chan, EY Managing Partner, Hong Kong and Macau, says: “Based on the revised estimate announced in today’s budget, the HKSAR Government (the Government) will record a budget surplus of HK$18.9 billion for the financial year 2021/22, a reversal of the budget deficits recorded in the prior two years.

With the rapid worsening fifth wave of coronavirus infections in Hong Kong, coupled with further tightening of various restrictive measures, and uncertainties in the global economic outlook, the Financial Secretary (FS) rightly directed more resources to relieve people's hardship, stabilize the economy and maintain public confidence by introducing an array of one-off measures in today’s budget. 

We are pleased to see the Government rolling out another round of consumption voucher. The electronic vouchers will be disbursed in instalments with a total value of HK$10,000 to each eligible Hong Kong permanent resident and new arrival aged 18 or above to boost domestic consumption. Similar to the first round of the scheme, this one-off measure would boost market sentiment and stimulate local spending, benefiting both our people and local businesses.

Although the new round of electronic consumption vouchers will cost the Government HK$66.4 billion, it is an exceptional one-off measure taken in light of the current circumstances and therefore should not impose a burden on Hong Kong’s long-term fiscal position.”

Chan also adds: “The estimated budget deficit for 2022/23 of HK$56.3 billion is mainly due to the one-off relief measures and anti-pandemic measures, representing 1.9% of Hong Kong’s GDP. It is projected that a fiscal balance will be achieved in 2023/24. The forecast is based on a real economic growth rate of 3%. As such, it would be imperative for the Government to ensure that Hong Kong re-emerges from its current economic difficulties and rebounds promptly.”

Talent and labour force

Chan says: “The Government has laid out measures to enrich the local talent pool and attract talent from outside Hong Kong for various industries. We believe that incentives or subsidies should be provided to a wider range of industries and not just for the innovation and technology sector to attract and retain talent.” 

Increasing revenue 

Paul Ho, Financial Services Tax and Business Advisory Services Partner at Ernst & Young Tax Services Limited says: “Given the current economic situation, it is reasonable for the Government not to revise the rates for profits tax and salaries tax. The proposed introduction of domestic minimum top up tax with regards to the MNEs under the scope of BEPS 2.0 Pillar Two and revision in the rating system should provide the Government with new revenue streams to achieve fiscal balance. These proposed measures will not impact local SMEs and most individual property owners.”

New international tax standards

The Government reaffirmed that it would preserve the advantages of Hong Kong’s tax regime in terms of its simplicity, certainty and transparency, maintain the territorial source principle of taxation as well as minimize the compliance burden on MNEs when implementing BEPS 2.0.

In terms of BEPS 2.0 Pillar Two, the Government plans to propose to the Legislative Council in the second half of this year to implement the global minimum tax rate and other relevant requirements in accordance with the international consensus.

Progressive rating system for domestic properties

The Government will implement a progressive rating system for domestic properties (excluding public rental housing) from 2024/25 to reflect the “affordable users pay” principle. The rate will change from the current flat rate of 5% to a progressive rate of 5/8/12% depending on the annual rateable value of the domestic property.

The Government will continue to consider on an annual basis whether to provide rates concession in view of the prevailing circumstances. However, from 2023/24, only eligible owners who are natural persons can apply for rates concession for one domestic property under their name.

Development of family office business

Ho says: “We welcome the proposed tax concession for eligible family investment management entities managed by single-family offices to enhance Hong Kong’s attractiveness as a hub for family offices. We hope that the Government will provide more clarifications on how closely the scope of the proposed tax concessions compares with that of other major competitors in the region.”

Development of the maritime and port sector

Ho says: “We are delighted that the dedicated task force set up to explore concrete proposals to promote the development of ‘Smart Port’ proposed a half tax concession which should attract more maritime enterprises to establish a presence in Hong Kong.”

Supporting our people and households

Robin Choi, People Advisory Services Partner at Ernst & Young Tax Services Limited, says: “The proposed reduction for the year of assessment 2021/22 final salaries tax capped at HK$10,000 is the same as that of last year.

“We are happy to see that the Government has taken up our previous recommendation and introduced a tax deduction for domestic rental expenses, capped at HK$100,000 for a year of assessment, starting from the year of assessment 2022/23. This will help ease the burden of renting a private property for taxpayers liable to salaries tax and tax under personal assessment who are not owners of domestic properties.” 

Read more on Hong Kong 2022-23 Budget insights.

-Ends-

Notes to Editors 

About EY

EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.

Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.

Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients, nor does it own or control any member firm or act as the headquarters of any member firm. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com.