Submission on “A Broader-based Tax System for Hong Kong?”
5 October 2001
Advisory Committee on New Broad-based Taxes
4th Floor, Main Wing
Central Government Offices
Lower Albert Road
Submission on "A Broader-based Tax System for Hong Kong?"
We are writing with our comments on the above consultation paper.
We note in paragraph 25 that measures such as reducing government expenditure are outside the purview of the committee. We therefore restrict ourselves in this submission to comments of the options for new revenue-raising proposed in the paper. However, we would preface our comments with three observations.
Our detailed comments on the paper follow, and are subject to the foregoing observations.
Personal allowances should not be abolished. Concessionary deductions, especially those that are property-related such as housing allowances and mortgage interest relief, are economically distorting and should be abolished.
Personal allowances were raised far too high in the budgets of the last several years. This was a mistake, and should be reversed. We would target a reduction of personal by at least 50% over, say a five-year term, and ideally reduction further than that. Since this would substantially increase the tax take, i.e. it would not be revenue-neutral, we would advocate "sweetening the pill" by concurrently reducing the actual tax rates by a few percentage points. More salary earners should pay tax, but at a low rate.
No. All are difficult to tax effectively, and all introduced severe economic distortion and disincentive.
No. Hong Kong should cleave to its original rationale as a free port as closely as it can.
No. There is no fiscal need, and such taxes contribute to unemployment.
Yes, if there is a fiscal need. However, we believe there is no such need.
No. We prefer a tax on general consumption.
N/A. (We wonder why these two items were singled out.)
Yes, if needed. However, we believe that there is no need.
3%, but see above comments: we do not see a need to introduce such a tax at present.
See above, and further comments below.
We feel that the paper does not go sufficiently into the nature of the tax system that we currently have. Although the take from land taxes has been lower in recent years (the only years analysed in the paper), over the medium to long run, land-related taxes have been the mainstay of the fiscal system. The very high yield from land sales, premium on conversion, rates, stamp duty on property, rentals and other property-related income, has enabled the Government to keep direct tax rates relatively low. However, this benefit has come at the cost of massive distortion to our economy – through overreliance on property – and higher property prices for everyone. These disbenefits really constitute a second layer of tax on the population. A third layer of tax is constituted by Government fees and charges which are high and in many cases unrelated to cost, or in respect of services the cost of which is unknown. A proper study of the tax system would take these factors into account.
We hope that the above comments are helpful.
Alan Lung Ka-lun
|Policy Paper - page revised 23-09-2002
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