HK considers maintaining Low-Tax Regime

Following a question in the Legislative Council on the recent report of the Working Group on Long-Term Fiscal Planning, Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, reiterated that fiscal prudence and the maintenance of the low-tax regime will remain the guiding principle of the Government of Hong Kong in managing public finances.

The recent report of the Working Group on Long-Term Fiscal Planning, which was set up in June 2013 to look at the state of Hong Kong’s public finances, suggested that a future structural fiscal gap will require the Government to find additional tax revenue.

Chan confirmed that the Government of Hong Kong would adhere to keeping expenditure within the limits of revenues, ensure a fiscal balance by avoiding deficits, as well as ensure that the budget keeps pace with the growth of Hong Kong’s economy.

While government revenue has exceeded 20% of gross domestic product (GDP) in recent years, the excess was largely attributable to the increase in land revenue, which amounted to some 3-4% of GDP, as compared with a previous average of about 2%. Land revenue is not, however, recurrent in nature, and government revenue was on average 18.6% of nominal GDP between 1997-1998 and 2012-2013, with the trough at 13.3% and the peak at 22.6%. Chan said these fluctuations are on account of the low tax regime in Hong Kong.

Also, Chan disclosed that government service fee levels are being re-examined in accordance with the “user pays” principle, where service users pay for the full costs of the services without requiring taxpayers to bear a burden. At present, more than 4 000 fees and charges in Hong Kong are set in accordance with that principle.

Filed under: Business and Economy, HK as a Financial Centre, Taxation

HK and US work on FATCA IGA

On March 25, Hong Kong and the United States of America signed a tax information exchange agreement (TIEA), which will provide the necessary basis for Hong Kong to enter into an intergovernmental agreement (IGA) to adhere to the United States’ Foreign Account Tax Compliance Act (FATCA).

Hong Kong’s Secretary for Financial Services and the Treasury, Professor K C Chan, and the Consul-General of the US to Hong Kong and Macau, Clifford A Hart, signed the document.

Hong Kong is now able to complete TIEAs, providing for the exchange of information (EoI) by the Inland Revenue Department, upon request from another jurisdiction, in tax matters. Previously, EoI provisions were included solely in comprehensive double taxation agreements (CDTAs).

Professor Chan commented that the TIEA with the US demonstrates Hong Kong’s continued commitment to fulfilling its international obligations by promoting tax transparency, and that Hong Kong would continue its efforts to expand the network of CDTAs.

Filed under: Business and Economy, International Business Environment, Taxation

HK is Top World’s Safest Country

According to a global survey, Hong Kong is the top location for lack of violence.

The survey of the Rule of Law Index has found that the rule of law is strongest in Scandinavian nations, while Hong Kong, Japan and Singapore are among the top locations for lack of violence.

“Order and security” refers to crimes, such as homicide, kidnapping, burglary, armed robbery, extortion and fraud; to political violence, including terrorism, armed conflict and political unrest; and to violence resulting from lack of confidence in the police and criminal justice program. Hong Kong, Japan and Singapore and all scored 0.9 or above, along with Denmark and Uzbekistan. Other countries with high ranks included Australia, scoring 0.86, the UK 0.84, and Spain 0.79. Pakistan scored worst, at 0.30, behind Nigeria (0.36) and Afghanistan (0.42).

Filed under: News and politics, Uncategorized

Working Group finds HK’s Fiscal Policies Unsustainable

The Working Group on Long-Term Fiscal Planning, established in June 2013 to look at the state of Hong Kong’s public finances, has suggested that a future structural fiscal gap will require the Government of Hong Kong to find additional tax revenue.

According to the Working Group’s analysis, Hong Kong’s overall fiscal position in the short- to medium-term remains healthy. However, in the longer term, the Government must seek to align the growth rates of its revenue and expenditure, it says.

It projects the economy will have a nominal annual growth rate of 4.4% until 2041, with government revenue growing at around the same annual rate (4.5%), reaching 19.8% of GDP (gross domestic product) in 2041-2042. If education, social welfare and health services remain unchanged, the Working Group projects 5.3% annual growth in public expenditure, and therefore a structural fiscal deficit from 2029-2030.

However, if funding for the 3 services were to increase by 3% annually, in line with historic trends, government expenditure would grow by an average 7.5% per year, and a structural fiscal deficit would surface in 7 years.

The Working Group recommends keeping public spending at the same level as revenue, at around 20% of GDP, by prioritizing “with a greater regard to long-term affordability and readiness to accept offsetting savings” in policy areas.

The Working Group on Long-Term Fiscal Planning, “holds strongly that the projections from this report should be treated as a wake-up call for the Government and the community to appreciate the scale of the structural deficit problem that could beset the Hong Kong community, given the ageing population and other known and potential financial commitments.”

Filed under: Financial statistics, HK as a Financial Centre, News and politics