The Hong Kong SAR Government (the Government) announced the Hong Kong Budget 2024-25 (the budget) today, in which a revised deficit of HK$101.6 billion will be recorded for the financial year 2023-24, which is almost double of their original forecast of HK$54.4 billion. Amid uncertainties in the global economic outlook, the Financial Secretary (FS) adopted a balanced approach in the budget to relieve people's hardship while simultaneously revitalizing the economy.
Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “The estimated budget deficit for 2023-24 of HK$101.6 billion is mainly due to reduced revenues from land premiums and stamp duties, as well as the Government’s effort in practical expenditure control. As previously advised by the FS, he has continued to predict a deficit position for 2024-25, albeit smaller. We support the Government’s timely adjustments to the demand-side management measures in the property market. These include the removal of the Special Stamp Duty, Buyer’s Stamp Duty and New Residential Stamp Duty for residential properties, as well as the adjustment of the upper limit of loan-to-value for residential properties. These measures will foster favorable conditions for economic recovery. It would be imperative for the Government to continue to closely monitor its expenditure and promote consumption and investment, in order to turnaround the deficit positions in recent years and stabilize Hong Kong’s fiscal future.”
Talent and labor force
Lee adds: “With a shortage of local talent and an aging population, we are pleased to see that the Government has continued to lay out sector-specific measures to enrich and nurture the local talent pool and attract talent from outside Hong Kong. We believe that while incentives or subsidies should be provided to attract and retain talent, it is also necessary for the Government to impose an effective monitoring mechanism to ensure every dollar is well-spent.”
Increasing revenue
Paul Ho, EY Financial Services Tax Leader for Hong Kong says: “Given the current economic environment, it is reasonable for the Government to consider mild measures to increase public revenue, including the two-tiered standard rates regime for salaries tax and tax under personal assessment and implementing the progressive rating system for domestic properties. The proposed introduction of global minimum tax and Hong Kong Minimum Top-up Tax (HKMTT) under the scope of BEPS 2.0 Pillar Two would provide the Government with new revenue streams in the long term to improve fiscal balance.”
Compliance with international tax standards
The Government has issued a consultation paper on the implementation of BEPS 2.0 in December 2023. The FS has reaffirmed that the relevant bill would be proposed to the Legislative Council in the second half of this year to implement the global minimum tax rate and the HKMTT at 15%.
Ho also says: “Hong Kong’s tax regime would still preserve its advantages in terms of its simplicity, certainty and transparency by maintaining the territorial source principle of taxation. It is an international consensus to implement BEPS 2.0 and Hong Kong is not the only jurisdiction which would introduce a domestic minimum top-up tax. Local small and medium enterprises (SMEs) and multinational enterprises (MNEs) that do not meet the EUR750 million threshold would not be impacted.”
Strengthening Hong Kong as an international asset and wealth management center
Ho further adds: “We are pleased to note that the Government is setting up a task force to discuss with the industry measures for further developing the asset and wealth management industry. It is encouraging to see that the Government is responding to the industry by looking into how best to further enhance the preferential tax regimes for funds, single-family offices and carried interest, notably reviewing the scope of the tax concession regimes, increasing the types of qualifying transactions and enhancing flexibility in handling incidental transactions. We are confident that these enhancements would further enhance our competitiveness as an international asset and wealth management hub.”
Patent box tax incentive
Wilson Cheng, EY Hong Kong and Macau Tax Leader says: “We are delighted that a bill to provide a patent box tax incentive would be introduced into the Legislative Council in the first half of this year to reduce the tax rate for qualifying profits derived from patents from the existing 16.5% to 5%. This tax incentive, together with other measures, would encourage more research and development (R&D) activities and help to develop Hong Kong into a regional intellectual property trading hub.”
Enhanced profits tax measures
Cheng also says: “We welcome the FS’ proposal to grant tax deduction for reinstatement expenses for leased premises and to remove the time limit for claiming tax depreciation allowances for commercial and industrial buildings. These measures would be beneficial to many corporate taxpayers in terms of reducing their profits tax burden.”
Supporting our people and households
Cheng comments: “The proposed reduction of the final salaries tax and tax under personal assessment for the year of assessment 2023-24, capped at HK$3,000, is lower than that of last year. However, considering the current fiscal position of Hong Kong, we consider that it is appropriate for the Government to scale back on the tax reduction. Hopefully, through other non-tax measures, the livelihood of our people and households would be improved.”
Read more on Hong Kong 2024-25 Budget insights.
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