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HKICPA calls for a tax review and more support for citizens and SMEs amid the economic downturn

10 February 2020

Advances 13 recommendations to support economic growth and improve overall well-being 

(HONG KONG, 10 February 2020) Today, the Hong Kong Institute of Certified Public Accountants (“HKICPA”) has announced its tax policy and budget proposals for 2020-21. Under the theme "Together for a Better Hong Kong", a range of 13 different measures were suggested to retain the city’s long-term competitiveness and help relieve the financial pressures on citizens.

HKICPA estimates that the fiscal deficit for 2019/20 will reach HK$18.1 Billion at the end of March. The deficit has been driven by the downturn in the economy, due to the effects of US-China trade dispute during 2019-20, the impact of the social unrest on specific sectors, such as tourism, retail and catering, and now also concerns over the spread of the novel coronavirus.  

However, fiscal reserves are expected to stand at HK$1.15 Trillion, an adequate level to cover government expenditure on local community support amid the economic downturn. “Hong Kong’s economy is at a crossroad, facing various domestic challenges as well as a slowdown in global growth. The increasing pressure on public finances, coupled with intensifying competition for business from other jurisdictions in the region and globally, and the changing international tax landscape, all point to a need to take a harder look at the city’s long-term positioning and competitiveness. In order to maintain Hong Kong’s strength as a global financial hub, the government needs to conduct comprehensive review of business and tax policies to help secure Hong Kong’s future economic success,” said Mr. Johnson Kong, President of HKICPA.

“Apart from a holistic review of the tax system, our proposals strongly emphasize improving the business environment for startups and new economy enterprises and, at the same time, providing additional support for the middle class and those most in need. Our suggestions include measures aimed at creating a better living environment for citizens by raising the standard of Hong Kong’s air quality and helping to ease the difficulties faced by citizens due to the unaffordable property prices and high cost of living. We call on the government to take further steps to provide immediate relief and to build a better Hong Kong for the long-term, through tax and non-tax measures,” explained Mr. Kong. 

Benefiting the middle-class and the underprivileged

The middle class constitutes a key engine of the economy. The Institute advocates enhancing assistance for them, as well as reaching out to low-income people not receiving any government assistance. “While they may not benefit greatly from the recent raising of the ceiling for the 2018/19 tax rebate to 100% from 75%, because the cap remains at $20,000, providing an increased cap of HK$30,000 under salaries tax, and for individuals taxed under personal assessment, as well as for profits tax, would help the middle class in the coming year. The government should also consider giving out a cash subsidy to permanent residents aged 18 and above, who are not taxpayers and do not own any property, so as to benefit the so-called ‘N-nothings’,” said Mr Curtis Ng, Convenor of the Budget Proposals Sub-committee, at HKICPA. “We suggest that some of this should be in the form of retail coupons, which would ease pressure on sectors that have come under considerable strain in recent months due to the social unrest and, more recently, by the outbreak of the coronavirus.” 

Given the continuing high property prices, the Institute believes the government should give further consideration to the idea of introducing of a home rental tax deduction, with a ceiling of HK$100,000 per year, for Hong Kong residents who do not own their own home and need to rent from the private sector (and who do not already receive a larger rent allowance from their employers). 

Supporting employees and local businesses 

In view of the downward trend in economic activity, it is anticipated that a substantial number of companies in the retail and catering industries, among other, may be forced to close down in the coming months. 

“As it is foreseeable that the number of individuals seeking help from the Protection of Wages on Insolvency Fund (“PWIF”) may increase significantly in the future; but some of the current ceiling levels for claims under the PWIF are relatively low. Therefore, we suggest that the government review the claim ceilings to meet employees’ basic needs in the case of redundancy,” said Mr. Kong. 

“For business owners, on the other hand, the government should consider introducing a mechanism for tax loss carryback into our tax system, as means to help relieve the cash flow pressure that businesses face during economic downturns,” said Mr. So Kwok Kay, the Past Chairman of HKICPA’s Taxation Faculty Executive Committee (TFEC). In many developed countries, tax loss carryback is available and taxpayers who are making a current-year tax loss may be able to get refund of tax paid in the prior year or years. It helps businesses ease their cash flow problems if they suffer a sudden deterioration in their performance. The Institute also asks the government to consider providing group tax loss relief to companies investing in startups, so that tax losses from those operations could be absorbed by other profitable group companies. This is another measure that could help ease businesses’ cash flow problems, instead of a tax refund.

Research and development (“R&D”) plays a pivotal role in spurring economic growth in many jurisdictions. To support Hong Kong’s long-term success in innovation and developing new businesses, the Institute advocates improving access to funding and support for R&D, to generate more patents and other homegrown intellectual property. “Many startups incur substantial tax losses in their early years of operation and cannot enjoy the benefits of the R&D super deductions introduced in 2019. The government should consider providing cash grants and equity financing to startups that meet certain qualifying conditions. Tax credits, grants and other kinds of support for startups are common around the world,” added Mr. So. 

Currently, startups and SMEs could be confused about their eligibility for financial assistance, given the 60-plus government-supported funding programmes potentially available. “To improve efficiency and effectiveness, the government should look at rationalising and consolidating these efforts. They should set up a centralised team or ‘one-stop shop’ to assess applications and advise applicants on the most appropriate route for them to apply for preferential programmes,” said Mr. So.

Investing in the tax regime development

HKICPA has been highlighting the importance of conducting a holistic review of the Hong Kong tax system for the past several years. “The holistic review has become even more pressing in the light of recent international tax initiatives affecting Hong Kong, among others. In the budget proposals this year, we reiterate the need to undertake a review, given the changes in the international tax landscape, as well as the gradual erosion of Hong Kong’s competitive edge,” said Mr. So. The Institute also stresses the importance of the Tax Policy Unit having a sufficiently broad and diverse membership to support an objective and wide-ranging review of the system. 

In order to bolster Hong Kong’s competitiveness and revitalise the economy, the Institute urges the government to consider providing a legal and regulatory environment that is more supportive of the emergence of new economy enterprises.  

“Certainly, the emergence of the digital economy brings challenges to traditional tax systems, particularly in relation to taxing rights, and a number of countries are struggling with this. It also poses questions for the law and regulation in Hong Kong,” said Mr. So. “Many people doubt whether Hong Kong’s laws and regulatory regime adequately support or encourage the development of the shared economy and other emerging developments. The government should examine how the environment could be made more conducive for new economy businesses to develop in Hong Kong.” 

Expanding environment measures 

Tackling climate change is undoubtedly one of the most serious challenges currently faced by many cities around the world, and Hong Kong is no exception.

Many countries have introduced green taxes, which have become an additional effective tool of environmental policy, alongside public education programmes and providing technical and financial assistance to foster industries engaged in environmental protection.

“The Institute believes the government should explore the possibility of introducing more measures, be they tax or non-tax, in Hong Kong, taking the ‘polluter pays’ principle into account. Examples could be introducing emissions taxes, as tax measures, and cash subsidies to companies who choose to use energy-saving and lower-emission products, as non-tax measures,” said Mr. William Chan, TFEC Deputy Chair.

“One area that needs to be addressed is vehicular pollution. More needs to be done to cut pollution due to an aged vehicle fleet in Hong Kong”, added Mr. Chan. The current taxi replacement rate is 1,000 units per year, meaning it will take more than seven years to replace taxis that are over 10 years old. Looking at the replacement rate of different vehicles, HKICPA proposes incentives such as subsidies for replacing old vehicles, covering aged diesel vehicles, taxis and minibuses. Drivers should be incentivised to switch to electric and hybrid private cars. Where they are replacing old petrol or diesel vehicles, the first registration tax on such vehicles should be reduced to the level required to install a new charging station (which we understand to be around HK$50,000). The government could then use the income from the first registration tax to install more charging stations within public car parking spaces.

The HKICPA Hong Kong tax policy and budget proposals 2020-21 "Together for a Better Hong Kong" are available at



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