Current Situation of Hong Kong Tax System
In current situation, Hong Kong has to find a new source of government revenue to remain the stability and sustainability. The most serious factor that urges the need of reform is narrow tax base.
Hong Kong are too relay on a several kind of taxes, which are Salaries and Profits Taxes, property-related taxes and non-tax income derived from land sales and investment earnings. This makes Hong Kong undergo a numerous of substantial fluctuations in revenue over the past few years.
It is obvious that Hong Kong’s current tax base could not maintain Hong Kong financial stability, especially with the aging problem. In 2012, the elderly who aged over or ...view middle of the document...
Salaries taxpayer base can be broadening by reduce allowances so that more people have to pay for their income. New indirect tax such as Goods and Services Tax is also suggested as to collect tax from individuals.
Introducing a new board-based consumption or indirect tax, Goods and Services Tax (GST) and Green tax will be suggested.
Two type of GST will be suggested, there are selected GST and general GST. Selected GST will only charge on some types of products such as cosmetic products and jewelry. It is aimed to charge on the luxury goods rather than necessities. This is in a “capacity to pay” principle. It is because in general, people willing to purchase luxury had relatively high income and purchasing power. For the general GST, there will be a lowGST rate for all goods and services. It is implemented in more than 135 jurisdictions around the world, impact on will of consumption of people is insignificant. For example, New Zealand, Canada, and Singapore had similar experience, with implementation of GST having only a minor and temporary effect on the economy. It is estimated HK$20 billion (US$2.6 billion) in net income for the government can be generated each year.
Green Tax such as carbon tax and dumping tax could also be implemented in Hong Kong. However, the green tax is estimated that only a few hundred million Hong Kong dollars a year can be generated and it is too small to make any meaningful difference to the multi-billion dollar annual budget. Green tax can reduce the environmental impact and raise a small amount of income. It is believed that the government had spent a great amount of revenue to cope with the environment issue in Hong Kong, therefore, a Green tax could reduce the spending on it and increase the net income of Hong Kong Government.
Broaden base of the salaries taxpayer
In 2011-2012, Hong Kong’s working population is 3.4 million, 1.2 million (35%) pay Salaries Tax. The top 100 000 salaries taxpayers contribute 60% of Salaries Tax and the top 500 000 salaries taxpayers pay 95% of the tax. If the personal allowances are reduced, more people will fall into the tax net. This may increase the tax revenue of the government.
Lower the Salaries and Profits tax
Lower the salaries and profits tax is a general trend in advanced countries. Governments should reduce reliance on direct tax source together with new broad-based indirect tax source, reduce tax income volatility, and ensure a stable tax income. This may improve the fiscal flexibility. Hence, the Hong Kong Government should try to adopt this method.
Introduce Land and Sea Departure Tax
The Land and Sea Departure tax will be levied when people leave or come to Hong Kong. People all departing from Hong Kong by land...