MR CHAN CHUN-YING (in Cantonese):
Chairman, regarding the Inland Revenue (Amendment) (Tax Concessions) Bill 2019 (“the Bill”), I did an analysis during the Second Reading debate, placing my focus on the possible effectiveness of the entire tax refund proposal, as well as the future long-term tax policy and public finance philosophy that warrant attention. In my first speech on the amendments at the Committee stage, I further analysed the possible consequences of the amendment to increase the concession rate from 75% to 100% and asked why the Government did not consider further widening the concession. I also drew Members’ attention to the trend that profits tax might gradually play a more important role in tax revenue. In the present speech, I wish to look from another angle at the interactive relations between the current tax concession and the support for enterprises.
In fact, the Government estimated that this proposal would benefit 1.91 million taxpayers of salaries tax and tax under personal assessment, as well as 145 000 tax-paying corporations and unincorporated businesses. As Members have mentioned many times, $17 billion of the reduction would be related to salaries tax and tax under personal assessment, and $1.9 billion would be related to profits tax in respect of corporations and unincorporated businesses. Obviously, corporations, or companies as we call them, actually enjoy less concession.
According to information from the Financial Services and the Treasury Bureau (“FSTB”), the Government’s revenue from personal taxes in 2017-2018 was $66.1 billion, while the revenue from profits tax was significantly different, standing at $139 billion. A calculation on this basis shows that the ratio of the currently proposed reduction of personal taxes to the previous year’s revenue is 26%, which is actually quite good, but the ratio of the proposed reduction of taxes from corporations or unincorporated businesses to the previous year’s revenue is only 1.4%. Chairman, this means that the current reduction is obviously lopsided towards individuals and small tax-paying entities, leaving little benefit to large ones. I believe no one would raise objection to this general direction.
However, as I mentioned earlier, the Working Group on Long-Term Fiscal Planning is vested with the task of conceiving ways for the Government to enhance Hong Kong’s public finance planning as a means of coping with problems arising from population ageing and its other long-term financial commitments. That said, Members should note that revenue contribution from salaries tax has been on a persistent downtrend since 2000-2001. Going forward, population ageing will pose further challenge on this revenue source, as raised by the Working Group. As I mentioned in my first speech, the proportion of labour force in the total population will drop to a level below 55% in 2027 from 59.3% in 2017, and further to 51.6% by 2037, ahead of 2047. This indicates that the Government badly needs to rely on profits tax revenues to balance taxes in the future, and hence accentuates the importance of the business environment.
Nevertheless, ironically sharing the same trend as salaries tax, profits tax has seen a shrinking base, with only about 9% of corporations paying tax in 2017-2018. I have also pointed out that the main reason for this problem is the surging number of registered companies in Hong Kong. Most of these newly registered companies are small and medium enterprises (“SMEs”), which have high failure rates. When they have no profit, they do not need to pay tax. Therefore, to maintain a stable tax base for profits tax in Hong Kong, the Government should focus its efforts on creating a good business environment for large, medium and small tax-paying entities, thereby maintaining a stable source of profits tax.
Chairman, even though the tax distribution is so polarized, the Government is vigorously assisting SMEs because they are the main source of local jobs. In the past two months, the SAR Government has announced a succession of measures to assist SMEs of different industries in reducing their operating costs, securing appropriate financing, exploring other markets and so on. This move has been widely appreciated in society. I am also actively involved in coordinating with chambers of commerce, the Hong Kong Monetary Authority and banks to assist these SMEs.
However, as I mentioned earlier at the policy briefing of the Panel on Commerce and Industry, and as the Commerce and Economic Development Bureau (“CEDB”) has also mentioned, the persistent demonstrations, clashes and social unrest have a severe impact on local economic activities, and local consumer spending has been hit hard by the damage to social order and security. This is also the background to the SAR Government’s current increase of the concession rate from 75% to 100%.
For those SMEs affected by the overall economic environment, the Government spares no effort to provide support. In contrast, for some Chinese-funded banks, travel agents and telecommunications operators that were subjected to targeted vandalism or arson by rioters, as well as some restaurants or retail outlets so targeted because of holding different political views from the perpetrators, I do not see any special support or assistance whatsoever from the SAR Government as a whole. Chairman, for good measure, I have to declare here that I work as a consultant for a Chinese bank.
Back then, I also mentioned that those commercial undertakings targeted for vandalism had not just suffered serious losses, but also been operating under “black terror” threats such as further damage and arson, which they were left to face alone. Given that the Government has failed to provide assistance to those enterprises and businesses, which have been based in Hong Kong for many years and paying tax every year, how can it attract enterprises from other regions to invest in Hong Kong in recognition of the city being safe for business, considering that these foreign enterprises will contribute to the long-term tax base of Hong Kong? The Government has announced a number of mitigation measures for SMEs, but will it provide additional support to enterprises and businesses that have fallen victims to targeted vandalism?
Chairman, it is disappointing that CEDB’s Secretary YAU condemned such acts on the one hand, but frankly said on the other hand that the Government did not have any additional support measures in place.
CHAIRMAN (in Cantonese):
Mr CHAN Chun-ying, please get back to the subject of this debate.
MR CHAN CHUN-YING (in Cantonese):
Chairman, I would like to draw Members’ attention to some objective tax figures and point out the helplessness that they reveal. Take the Chinese banks that I have just mentioned as examples. What does the picture of their profits tax payments look like? I have picked only six of the Chinese retail banks whose main businesses operate in Hong Kong. The tax amounts payable by them for the year of assessment 2018-2019 range from $200 million to $6.4 billion. On average, each of them pays nearly $1.8 billion per year in taxes. In fact, enterprises paying more tax may not need tax concessions, as they have benefited mainly from the business environment of Hong Kong. They should give back to society from time to time. I have noticed that the aforesaid banks have not asked the Government for any additional tax concession measures whatsoever, and they have tried their best to implement corporate social responsibility.
However, what has the Government done to maintain the good business environment of Hong Kong so as to attract all enterprises to come and eventually pay taxes? In fact, what matters most in saving Hong Kong’s current economic situation is not reduction of operating costs, assistance in securing financing or support for market exploration, which cannot be the sole solution, but rather that the Government stops extreme violence as soon as possible, so that calm is restored in Hong Kong for enterprises and businesses to operate free from the threat of “black terror”, and for the public to engage in spending with their minds at ease.
In this connection, I hope that the Government will most promptly safeguard the continuous operation of enterprises and businesses in a safe environment, otherwise their operation will be adversely affected, which will conversely have a negative impact on the Government’s tax revenue. When the tax revenue is undermined, the Government will inevitably be faced with some constraints in considering the introduction of other tax concessions similar to the current $20,000 or some tax adjustment measures.
Chairman, the tax refund proposal and the current amendments will, therefore, have my support. Meanwhile, however, we should ask the Government to do its utmost to maintain the good business environment of Hong Kong, so that the outlook for tax revenue remains stable. Although this may not be the sole responsibility of FSTB’s Under Secretary CHAN, as the SAR Government is always a team working as a whole, FSTB must actively reflect the views given by different Members this time. The disease haunting Hong Kong cannot be cured by merely targeting symptoms without anyone to take care of this “patient” in a holistic manner.
Chairman, I so submit