CPA Australia, one of the world’s largest professional accounting bodies, will today urge the Financial Secretary, John Tsang, to consider introducing a tax incentive to help taxpayers save for their retirement as a solution to addressing the ageing population challenges in Hong Kong.
CPA Australia recommends that the Financial Secretary consider providing Hong Kong taxpayers with further tax deduction for voluntary contributions to the MPF Scheme by employees, which would be capped at 15 per cent of assessable income or HK$180,000 per annum.
In view of the current housing problem faced by many of the young people and families in Hong Kong, CPA Australia proposes that a one-time withdrawal of the voluntary contributions from the Scheme may be allowed for taxpayers to purchase a primary residence in Hong Kong. Any tax deduction could be recouped if, within 36 months of the withdrawal from the Scheme, the taxpayer stops residing in the property or sells it.
“Hong Kong’s overheated property market is characterised by a supply-demand imbalance. Our proposal would help taxpayers to save money and use these savings as a deposit for their primary home, whilst at the same time the Government tries to increase the supply of residential property to local home-buyers. Through the deduction, we propose that taxpayers could also opt for saving money for their retirement,” said Loretta Shuen, Chairperson of Taxation Committee – Greater China, CPA Australia.
“CPA Australia forecasts that the Government will register a surplus of HK$55 billion for 2014/15. However, in view of the challenges facing Hong Kong including the ageing population and the growing competition from the neighbouring countries, we urge the Government to take immediate action to conduct a comprehensive, “root and branch” review of Hong Kong’s tax system to ensure long term financial sustainability through a broadened tax base,” Mrs Shuen said.
CPA Australia conducted a tax survey among its members to find out their views on a number of important tax issues. The survey was completed by 136 finance and accounting professionals from listed companies, multinational corporations, private enterprise, government and not-for-profit organizations in Hong Kong over a two-week period in January.
The survey revealed that the level of satisfaction with Hong Kong’s current tax system increased three percentage points from last year to 69.9 per cent this year. However, respondents believe that the tax system still faces two major issues: Hong Kong’s existing tax base is very narrow by international standards (52.9 per cent) and the Government relies too much on land based revenue (50.7 per cent).
When asked to compare jurisdictions, 42.7 per cent of respondents ranked Singapore as having the most internationally competitive tax system, up 5.6 per cent from last year. This was followed by Hong Kong which is down 2 per cent from last year to 30.2 per cent.
An overwhelming 83.1 per cent of respondents believe the Government should undertake immediate action to review and reform the tax system to help ensure Hong Kong’s future growth and prosperity. When asked about what new tax measures respondents would like to see implemented, 45.6 per cent chose a tax on luxury goods, 32.4 per cent would like progressive profits tax rates and 28.7 per cent want a capital gains tax.
“These findings add further weight to our long standing call for the Government to conduct a comprehensive review of the tax system, which has remained largely unchanged for almost four decades. Such a review would help to identify reforms to meet the financial demands caused by the ageing population and ensure Hong Kong’s international competitiveness,” Mrs Shuen said.
To address the current housing problem, 40.4 per cent of respondents believe the Government should implement new and further measures. 29.4 per cent think all current tax measures should be retained and 25 per cent think all or some of the current measures should be removed.
When asked about the Government’s proposed introduction of a voluntary health insurance scheme (VHIS), over two thirds (68.4 per cent) of respondents would consider participating, with 52.9 per cent indicating they would participate only if a reasonable tax incentive was provided. Additionally, more than half (51.1 per cent) want to see a tax deduction provided for all dependents’ policies with a capped amount paid by a taxpayer.
With regards to salaries tax measures, 41.2 per cent of the respondents would like to see both increases to child allowance and dependent parent allowance, and 47.8 per cent want to see future increases in personal allowance linked to the level of inflation.
When asked about which industries are most in need of preferential tax policies, the respondents ranked environmental (56.6 per cent), innovation and technology (56.6 per cent) and manufacturing (23.5 per cent) as the top three.
To support the SME sector, the backbone of Hong Kong’s economy, tax measures that respondents would like the Government to introduce include allowing SMEs to carry back losses for a period of two years (42.7 per cent) and reducing the profits tax rate for SMEs (32.4 per cent).
Based on the survey findings, CPA Australia will submit to the Chief Executive, Financial Secretary and the Commissioner of Inland Revenue the following recommendations:
“Root and branch” tax reform
- Conduct a comprehensive “root and branch” review of Hong Kong’s tax system including options for broadening the tax base.
- Consider introducing a 3 per cent luxury goods tax as a precursor to a broad-based goods and services tax.
Tax incentives to help taxpayers save for retirement or a home deposit
- Consider a further tax deduction for voluntary contributions to the MPF Scheme by employees, which would be capped at 15 per cent of assessable income or HK$180,000 per annum, allow a one-time withdrawal of the voluntary contributions from the Scheme for taxpayers to purchase a primary residence in Hong Kong, and recoup tax deduction if, within 36 months of the withdrawal from the Scheme, the taxpayer stops residing in the property or sells it.
Tax incentives for taxpayers to join a Voluntary Health Insurance Scheme (VHIS)
- Introduce a tax deduction for the actual amount paid subject to a cap of HK$20,000 per person insured.
- Provide a tax deduction for all dependents’ policies capped at HK$100,000 paid by a taxpayer.
Tax incentives for individuals
- Increase child allowance to HK$100,000 per child.
- Increase dependent parent allowance and elderly residential care expenses by 50 per cent.
- Link increases in the personal allowance of salaries tax with the rate of inflation.
- Extend the current home loan interest deduction period from 15 years to 25 years.
- Increase the current deduction home loan interest cap from HK$100,000 per year to HK$200,000 per year.
- Reinstate the rates waiver for 2015/16, subject to a cap of HK$1,500 per quarter for taxpayer’s residence.
Tax incentives for environmental, innovation and technology start-up companies
- Introduce a super deduction of 200 per cent in training, R&D, equipment and machineries for a period of two years for environmental and technology start-up companies.
- Provide a three-year tax holiday beginning when the companies start to generate assessable profits.
Tax incentives for SMEs
- Reduce profits tax rate for SMEs to 13.5 per cent.
- Allow SMEs to carry back losses for a period of two years.
CPA Australia is one of the world's largest accounting bodies with more than 150,000 members globally. It has established a strong membership base of more than 15,000 in the Greater China region.
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