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Hong Kong Commits To Low-Tax Policies

Hong Kong's Financial Secretary, John C Tsang, has said authorities will restrict the territory's spending to 20 percent of gross domestic product (GDP) to ensure that the territory can maintain balanced budgets and a low-tax regime.

Government revenue in Hong Kong was on average 18.6 percent of nominal GDP between 1997-98 and 2012-13, with the trough at 13.3 percent and the peak at 22.6 percent, but Tsang told business leaders that the recent report of the Working Group on Long-Term Fiscal Planning, set up in June 2013 to look at the state of Hong Kong's public finances, had suggested that a future structural fiscal gap will require the Government to find additional tax revenue.

However, with economic growth expected to continue, he suggested that fiscal sustainability 'requires a greater focus on the long-term affordability (of expenditure), as well as a collective effort to preserve, stabilize and, where possible, broaden the revenue base.'

Tsang disclosed that, on revenue policies, his current thoughts concentrate on protecting the direct tax regime to avoid erosion of the tax base for profits and salaries tax income, but that Hong Kong 'must keep revenue policies business-friendly, competitive and attractive.' He added that: 'We must also be alert to opportunities that may offer new or more revenue streams. Maintaining Hong Kong's competitiveness and stimulating long-term economic growth is the foremost priority for our fiscal policy.'

Although he admitted that, in the medium-to-long term, Hong Kong needs to explore ways to broaden its revenue base, he identified that 'the limited types of tax that we have, and the low tax rates that we impose currently, are landmark features that underpin Hong Kong's competitiveness and attractiveness.'

With regard to new or additional revenue sources, he reminded his audience that the Government had conducted a number of reviews on tax policies in the past, including the Advisory Committee on New Broad-based Taxes in 2000 and the consultation on introducing a goods and services tax in 2006, but he did suggest that it could be the time to push forward another comprehensive tax review to respond to the Working Group's projections.

He emphasized that, while 'the Government does not have any plan at this time to introduce new taxes, in principle we always keep an open mind.' In considering the various options on broadening Hong Kong's tax revenue in the future, he reiterated that any choice 'must remain faithful to our simple and low tax system in order to maintain our competitiveness in attracting capital and talent.'

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