Delivering his third Budget, Hong Kong Financial Secretary Paul Chan focused on fiscal prudence while controlling government expenditure and minimising the impact on the public. He reaffirmed the government’s commitment to continue developing large-scale infrastructure projects and making AI a ‘core industry’ to help traditional sectors upgrade and transform.
Attributing the HK$87.2bn deficit for the 2024/25 financial year to ‘multiple internal and external challenges’, the financial secretary emphasised the need for ‘new quality productive forces’ to enhance the future sustainable development of Hong Kong.
ACCA Hong Kong chairman Stanley Ho and tax subcommittee co-chairmen Gloria Chan and Polly Wan offer their views on the Budget policies.
How well did the financial secretary’s belt-tightening Budget control economic growth prospects?
SH While delivering a Budget from a deficit position is not ideal, it could be viewed as a way of carefully handling resources while the benefits from ongoing efforts to attract businesses and talent to Hong Kong take time to mature. The financial secretary informed Hong Kong citizens about the SAR’s fiscal position. To counter the deficit, he explained the necessity of containing government spending through measures like freezing civil service pay, increasing revenue income, reducing public sweeteners and bringing back funds from seed capital.
The Budget struck a balance between near-term fiscal discipline and long-term policies
GC Overall it was a considerate Budget. The financial secretary delivered a Budget that struck a balance between near-term fiscal discipline and long-term policies. He demonstrated a focus on maintaining a solid foundation for building a resilient and competitive Hong Kong for the future.
PW Despite the fiscal deficit, the financial secretary allocated resources to where they are most needed, especially in the areas of innovation and technology, which have been identified as important areas for future growth. While there were fewer sweeteners in this Budget, there is a HK$1,500 salaries and profits tax reduction, social security concessions and a rise in the maximum value of properties chargeable to a stamp duty of HK$100 from HK$3m to HK$4m to ease the burden of buyers of lower-value residential and non-residential properties.
Which Budget announcements aligned with ACCA’s list of 20 recommendations?
PW A number of Budget initiatives aimed at increasing efficiency and reducing expenditure aligned with ACCA recommendations. For example, government departments would increase the use of technology to speed up the processing of online licensing applications. Our recommendation to prioritise government spending on large-scale infrastructure projects was also included.
Four of our nine recommendations to broaden income sources appeared in the Budget
GC Four of our nine recommendations to broaden income sources appeared in the Budget. These include enhancements to optimise the capital investment entrance scheme and talent admission mechanisms. Increasing the scope of eligible transactions for tax concessions for qualifying funds and family offices also align with ACCA recommendations. Increasing air passenger departure tax and the announcement to explore expanding the scope of sports betting to include basketball matches also corresponded with our recommendations.
SH The application of digitalisation to streamline processes and improve government efficiency is something that ACCA has been advocating. Digitalisation offers more than reducing expenditure, as having data on accessible digital platforms provides a better way to serve the city’s citizens.
How did the Budget announcements fit with ACCA’s recommendation to make better use of underutilised government-owned properties?
GC The holistic approach to address the current commercial property market challenges and housing needs of the community fits with our concept of maximising the value of underutilised government property assets through repurposing, sales, commercialisation and strategic management. We urge the government to further review the property asset portfolio to see if there are assets that have no immediate value which could be sold to create a revenue stream and reduce maintenance costs.
SH An area the government could consider is working with the business community to turn underutilised properties or properties with historic interest into tourist attractions.
AI investment could drive tech collaboration with mainland China
Could a global 15% minimum tax on multinational companies affect Hong Kong’s attractiveness as a tax-friendly business jurisdiction?
PW The global minimum tax of 15% is part of the international tax reform framework. The threshold only applies to large multinational enterprise groups with an annual consolidated group revenue of at least €750m. Companies that do not meet this threshold will not be affected. With no new taxes introduced, the existing low and simple tax regime should maintain Hong Kong’s competitiveness.
GC Complying with the global minimum tax requirement could boost confidence in Hong Kong as a global business hub, especially when coupled with other strategic advantages such as geographic location, low and simple tax regime and robust IPO, legal and financial infrastructure.
SH The government could observe what our friendly regional competitors are doing, such as offering qualified refundable investment credits, which could add to Hong Kong’s competitiveness.
What are the benefits offered by technology-related initiatives, including HK$1bn to establish the Hong Kong AI Research and Development Institute?
SH An investment in AI could create more collaboration between Hong Kong’s tech companies and mainland China’s tech unicorns. Strategically, Hong Kong could leverage its advantage of offering internationally recognised patent and IP legal protection to attract companies to set up in Hong Kong.
PW Development of AI-related infrastructure, especially in the Northern Metropolis as it is developed, could help to attract high-quality tech companies from mainland China.
What are the potential outcomes from the review of tax deduction arrangements related to intellectual property?
SH To add another layer of benefits to the intellectual property tax deduction framework, we suggest the government could expedite the double taxation treaties with ASEAN and the Middle East. This could allow businesses to enjoy a more favourable withholding tax rate in foreign jurisdictions and also strengthen Hong Kong’s status for the development of high value-added industries.
