At a glance
By Jonathan Ng
Amid a worsening fifth wave of COVID-19 infections, Hong Kong’s Financial Secretary Paul Chan unveiled an expansionary budget directing resources to “stabilise the economy and maintain public confidence”.
The measures announced in the budget total HK$170 billion (A$30.2 billion), HK$54 billion (A$9.6 billion) of which include spending on anti-epidemic measures.
The measures target four main areas. The first two relate to providing resources to combat the pandemic and provide relief to people and small and medium-sized enterprises (SMEs).
The other two focus on short-term support to revitalise the economy and planning for medium and long-term development.
“Taking prompt action to stabilise the epidemic situation is crucial for safeguarding the health and lives of our people,” Chan said.
“It is also the key to maintaining people’s confidence and stabilising our economy.”
Chan also warns of weak economic performance in the first quarter of 2022, due to the fifth wave of infections and a tightening of measures to control the outbreak.
However, striking a cautiously optimistic tone, Chan expects improved performance in the second half of this year, forecasting that the Hong Kong economy will grow between 2 per cent to 3.5 per cent in 2022, compared with a 6.4 per cent expansion last year.
New round of e-consumption vouchers
Chan announced another round of HK$10,000 (A$1783) e-consumption vouchers, citing the positive impact of last year’s consumption voucher scheme on boosting business and economic sentiment and accelerating electronic payment adoption. The vouchers will be handed out to every eligible Hong Kong permanent resident and new immigrants aged 18 and above.
The first batch of HK$5000 (A$890) vouchers will be issued in April, and the remaining HK$5000 will be issued later in the year. This measure involves a financial commitment of about HK$66.4 billion (A$11.8 billion).
Anthony Lau FCPA, co-chairperson of CPA Australia’s Taxation Committee – Greater China, expressed support for the scheme.
“This will help stimulate local consumption in an economic environment where the pandemic is expected to have eased,” Lau says.
“Further, I believe public resources will be more effectively distributed if the issuance of the consumption vouchers could be more targeted to people in need.”
Chan also announced a tax deduction for domestic rental expenses during 2022-2023 subject to an annual deduction ceiling of HK$100,000 (A$17,830), to alleviate the financial burden on those who rent their homes and pay salaries tax and tax under personal assessment.
Janssen Chan FCPA, co-chairperson of CPA Australia’s Taxation Committee – Greater China, has backed the announcement, describing it as “excellent news” for renters.
“This will not only help reduce their living expenses, but also support the retention of international talent and young people in Hong Kong,” he says.
“Further, we suggest that the government considers clarifying the types of rental properties that this initiative would cover.”
Rates concession for domestic properties will be provided for four quarters of 2022-2023, subject to a ceiling of HK$1500 (A$267) per quarter in the first two quarters, and a ceiling of HK$1000 (A$178) per quarter in the remaining two quarters for each rateable property.
Relief measures for business
The 2022-2023 budget details a series of relief measures to help businesses enhance cash flow and ease operating pressure.
The application period for the government-guaranteed loans scheme for SMEs will be extended for one year to June 2023.
The Special 100% Loan Guarantee under the scheme will be enhanced, with the borrowing limit for businesses to rise from HK$6 million (A$1.06 million) to HK$9 million (A$1.60 million) and the maximum repayment period to rise from eight to 10 years.
The financial secretary has also requested that the Hong Kong Monetary Authority extend the Pre-approved Principal Payment Holiday Scheme for six months to the end of October this year.
“We are delighted that the government has adopted CPA Australia’s proposals to extend the application period of the Special 100% Loan Guarantee as well as the Pre-approved Principal Payment Holiday Scheme,” says CPA Australia’s Chan. “This will have a very positive impact on SMEs.”
To prevent landlords from terminating the tenancy of tenants of specified sectors for failing to pay rent on time, a rental enforcement moratorium will be introduced.
This allows SMEs to delay rental payments for up to six months.
CPA Australia says this measure requires serious consideration.
“This measure aims to reduce the rental burden on SMEs. The government should also consider the impact this measure will have on landlords and the banking system,” says CPA Australia’s Chan.
“The government should consider introducing tax incentives for landlords to encourage them to reduce rent payable by their tenants. This may provide direct support to many SMEs.”
Other business-friendly initiatives include waiving business registration fees for 2022-2023 in a move that should help 1.5 million business operators.
The government will also reduce profits tax for the year of assessment 2021-2022 by 100 per cent, subject to a ceiling of HK$10,000 (A$1781). This move should benefit 151,000 businesses.
As part of enhancing Hong Kong’s status as an international financial centre, Financial Secretary Chan announced that the government will increase efforts “to promote Hong Kong’s position as a bond centre among investors and bond issuers”. The government plans to issue inflation-linked retail bonds, Silver Bonds and retail green bonds in the next financial year.
The government is also preparing to allow stocks traded via the Southbound Trading of Stock Connect to be denominated in renminbi.
"We welcome the government’s continued support to develop the bond market, increase the issuance of different types of bonds and develop trading platforms,” says Lau.
“CPA Australia had suggested before that the government consider issuing perpetual bonds and/or long-term bonds to promote the development of the bond market and enhance Hong Kong’s status as an international financial centre."
To further attract family offices to establish a presence in Hong Kong, Financial Secretary Chan proposed to provide tax concessions for eligible family investment management entities managed by single-family offices.
“We believe that to attract more family offices into Hong Kong, the government should consider providing preferential tax treatment for fee income derived by family offices from managing family assets,” says Lau.
“Extending the carry interest tax concession to family offices managing family assets should also be considered.”
Maintaining healthy public finances
Chan forecasts a 2021-2022 surplus of HK$18.9 billion (A$3.36 billion). The surplus is due in part to higher-than-expected income from land premium (land sales) and profits tax. Lower-than-forecast expenditure has also contributed to the government delivering a budget surplus.
The government expects an overall budget deficit of HK$56.3 billion (A$10.04 billion), or 1.9 per cent of GDP, in 2022-2023.
Acknowledging that there is a need to increase revenue without impacting people’s livelihoods, Chan said he does not believe it is the right time to revise profits and salaries tax rates.
He anticipates that the introduction of a global effective minimum tax rate of 15 per cent for multinational enterprises (MNEs) may help increase revenue from profits tax.
“The government will maintain communication with relevant MNEs to enable them to familiarise with the new tax rules as soon as possible,” Chan says, adding that he is considering introducing a domestic minimum top-up tax for MNEs starting from the year of assessment 2024-2025.
“Based on our rough estimates, the domestic minimum top-up tax will involve an amount of about HK$15 billion (A$2.67 billion) per year.”
“To maintain international competitiveness in an evolving global tax environment, CPA Australia recommends that the government conducts a comprehensive review of the current tax system by focusing on the three ‘Cs’, namely certainty, clarity and consistency in the review,” suggests Lau.
To reflect the “affordable users pay” principle, the financial secretary also proposed the introduction of a progressive rating system for domestic properties.
“For domestic properties with rateable value of HK$550,000 [A$98,000] or below, it is proposed that rates be charged at the present level of 5 per cent of the rateable value. For domestic properties with rateable value over HK$550,000, it is proposed that rates be charged at 5 per cent of the rateable value on the first HK$550,000 and at 8 per cent of the rateable value on the next HK$250,000 [A$44,500], and then at 12 per cent on rateable value exceeding HK$800,000 [A$142,397],” Chan said.
This is expected to affect about 42,000 domestic properties and increase government revenue by about HK$760 million (A$135 million).
Riding out the storm
In his concluding remarks, Chan reflected on Hong Kong’s resilience in weathering many challenges.
“While every fascinating story is full of twists and turns, every success is spurred by the strength gained from overcoming setbacks,” he said.
“We deeply believe that Hong Kong can steer towards becoming a more equitable, just, caring and inclusive society.”
Jonathan Ng is a policy adviser at CPA Australia.
