With Hong Kong’s fiscal reserves expected to dip to HK$733.2bn by 31 March 2024, compounded by an anticipated deficit exceeding HK$100bn for the financial year, the 2024/25 Budget presented by Paul Chan, Hong Kong’s financial secretary, on 28 February focused on consolidating public finances, driving sector-specific growth and solidifying economic recovery of the Special Administrative Region (SAR).
Under the theme of ‘Advance with confidence. Seize opportunities. Strive for high-quality development’ to drive the next lap of Hong Kong’s growth, the Budget included measures to attract enterprises and talent to the SAR by enhancing existing tax incentives.
ACCA Hong Kong’s tax subcommittee co-chairmen, Charles Chan and Wilson Cheng, along with ACCA Hong Kong’s vice chairman, Stanley Ho, give their views on the measures, and review the significance of recommendations from ACCA’s Budget submission.
With Hong Kong facing a large deficit, did the Budget provide a vision for its economic future?
WC At a critical time during the current transitional economic environment, the financial secretary has done a commendable job by striking the right balance between implementing ways to increase government revenue and the interests of different stakeholders.
SH By enhancing Hong Kong’s competitiveness with support measures for green finance, innovation and technology and asset management, while cautiously reducing government spending by implementing productivity enhancement measures, overall the financial secretary delivered a balanced Budget.
CC The Budget included measures which balance the aim of increasing revenues for the government without having a negative impact on the wider community. For example, the adjustment made to salaries tax is directed at those who can afford to pay more.
‘We welcome the cancellation of all demand-side management measures for residential properties’
A number of the Budget proposals aligned with ACCA recommendations. Which are the most significant?
SH We welcome the government accepting our recommendation to cancel all demand-side management measures relating to residential properties, which include the removal of: buyer’s stamp duty, which is applicable to non-Hong Kong permanent resident buyers; new residential stamp duty, which is generally applicable to buyers that own other residential property in Hong Kong; and special stamp duty, which is applicable to those who dispose of their residential property within two years after acquisition. With the measures removed, we anticipate there will be an immediate uplift in the volume of property transactions. Importantly, at a time when Hong Kong is trying to attract talent, removing barriers to purchasing a property could provide an incentive.
WC A welcome outcome from the removal of the property control measures is the return of confidence in the Hong Kong property market. Another Budget proposal that chimes with ACCA’s recommendations is the reduction of the subsidy on the first registration fee for electric vehicles. The tax concession for buyers, who trade in their internal combustion cars, will be lowered to HK$172,500, or 40% less than the current HK$287,500. High-end electric vehicles, such as those costing HK$500,000 before tax, will be ineligible for concessions under the affordable ‘users pay’ principle. This recommendation provides clear direction to the market about the type and class of electric vehicles Hong Kong needs to replace traditional gasoline vehicles.
CC The cancellation of the decade-old property management cooling measures on residential properties is welcome and bold. In terms of the removal of the ‘cooling’ measures leading to property speculation, we agree with the government’s view of allowing property transactions to take place according to market supply and demand. Even with the cooling measures withdrawn, it is unlikely that everyone will suddenly want to buy a property.
‘We would like to see more emphasis on tax incentives to encourage new industries’
While incremental changes were made to the current tax system, overall the financial secretary held off from initiating any major changes. Was he right to do so?
SH At a time when Hong Kong’s economy is still recovering from the effects of the Covid-19 pandemic as well as being impacted by high interest rates and geopolitical challenges, we believe the financial secretary has been wise to adjust the tax system only in those areas which are less controversial and have less of a negative effect on the general population. For example, the adjustment to the standard rate of salaries tax will apply only to about 12,000 taxpayers. Salaries tax will continue to be subject to the standard rate of 15%, while the portion of net income exceeding HK$5m will be subject to the standard rate of 16%.
WC While recognising that Hong Kong is in a period of economic recovery, it remains our long-held belief that the tax system should be comprehensively reviewed with the clear purpose of diversifying Hong Kong’s established pillar industries to facilitate sustainable economic growth.
CC While the government has introduced tax incentives designed to attract family offices and asset management firms to Hong Kong, we believe it would be beneficial if both the implementation of tax incentives were sped up and the scope of those incentives was widened. To further expand the scale of family offices and diversify their investment portfolios, we suggest the government could expand the asset categories eligible for tax incentives to include more classes of assets. While the financial secretary allocated funding in the Budget to support Web3 and tech industries, to help Hong Kong build a more balanced economy and be less dependent on financial services, we would like to see more emphasis directed towards tax incentives to encourage the development of new industries.
‘The patent box incentive is a step in the right direction to attract intellectual property-driven business’
Which areas of the Budget stood out for attracting businesses and talent to Hong Kong?
WC The patent box incentive, which offers a 5% concessionary tax rate instead of the 16.5% standard tax rate on qualifying profits derived from R&D activities conducted within Hong Kong, is a step in the right direction to attract intellectual property-driven business to Hong Kong. To encourage a wider scope of R&D development, the incentive could be extended to include qualifying R&D collaboration activities in the Greater Bay Area and the Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone.
SH The allocation of HK$3bn for an AI supercomputing centre and the allocation of HK$6bn to Hong Kong universities to establish technology research institutes show there is a determination to develop new industry sectors. However, to attract more R&D collaboration and activities to Hong Kong, we suggest the government considers taking the commitment a step further by revisiting its current R&D super tax deduction.
CC Execution is key for bringing businesses and talent to Hong Kong. The government’s Office for Attracting Strategic Enterprises (OASES), which has recently played a role in bringing about 50 ‘strategic, high-powered’ companies to establish or expand their businesses in Hong Kong, seems to be doing a good job.
