Legislative Council meeting Bills : Comm of Whole Council-Inland Revenue (Tax Concessions) Bill 2019

Comm of Whole Council-Inland Revenue (Tax Concessions) Bill 2019

MR CHAN CHUN-YING (in Cantonese):

Chairman, as I mentioned in my speech during the Second Reading debate, the Inland Revenue (Amendment) (Tax Concessions) Bill 2019 (“the Bill”) seeks to implement a proposal in the 2019-2020 Budget (“the Budget”), and it carries a very straightforward objective of alleviating the burden of taxpayers. Initially, the Bill put forth the specific proposal of providing a one-off tax concession at the rate of only 75% for salaries tax, tax under personal assessment and profits tax for the 2018-2019 assessment year, with a maximum reduction amount of $20,000 for each case.

Initially, the Bill could have been presented to this Council for Second Reading before the summer recess. The Government did not propose any amendment at the time as it hoped that the Bill could pass scrutiny as soon as possible, so that the Inland Revenue Department could reflect in time the concession amount in the notice on final tax payment for 2018-2019 issued to people this year, and people could make the necessary financial arrangements. The Government also anticipated that after the passage of the Bill, some 1 900 000 taxpayers of salaries tax/tax under personal assessment and also 145 000 tax-paying corporations/unincorporated businesses could benefit, meaning that a total of 2 045 000 taxpayers could benefit. Due to this measure,the Government would receive around $19 billion less in its tax revenue―$17 billion and $1.9 billion as tax reduction for individuals and corporations/unincorporated businesses respectively.

Nevertheless, the reality was that the Council meetings in June this year could not be commenced due to the outbreak of a social incident. On 1 July, the Legislative Council Complex even sustained unprecedented damage and was forced to suspend operation for quite a long time. For all these reasons, the Bill could not be introduced into the Legislative Council for the resumption of its Second Reading as scheduled.

Second Reading began yesterday. I understand from Members’ speeches over these two days that the Bill has not met with any opposition views. Precisely for this reason, the Administration took a further proactive step of conducting a focused study on the possible economic predicament that would be faced by people in the days ahead or in the near future. Besides, officials from the Financial Services and the Treasury Bureau likewise took the initiative to meet with Members during the adjournment of the Council to discuss how best to enable people to see the final, actual amount of tax payable for this year clearly on their tax returns before the passage of the Bill in the Legislative Council as a little comfort to them amidst the prevailing vexatious social atmosphere. While the discussion outcome is still pending, I think that the goodwill shown by the Government is commendable.

Nevertheless, the Government might have never expected that the social incident caused by the amendment of the Fugitive Offenders Ordinance would produce huge adverse impacts on Hong Kong’s economy during the period from June to July and plunge various industries into recession. Employees in different industries (including the retail industry, the tourism industry, the catering industry and also the transportation industry) have invariably faced the risk of underemployment or even unemployment, and people have come under increasing pressure in their living. In the case of the tourism industry, for example, the number of tourist arrivals has kept decreasing ever since the outbreak of the anti-legislative amendment turmoil in June, registering a year-on-year decline of 30% in July and even a further drop by half during the first 15 days of October. At the same time, the social incident spanning over the past few months has plunged Hong Kong people into a state of grave sadness, and they even do not have any mood for travelling and spending. As a result, revenue from the outbound fare levy has recorded a year-on-year decrease of over 30%. Due to the plummeting numbers of inbound and outbound visitors, many tour guides and tour escorts are forced to take no-pay leave, and an atmosphere of sheer gloominess is prevalent in the industry. As for the transportation industry, some taxi drivers say that their income has shrunk by 30% to 50% as protests and conflicts that have persisted since June and also the frequent, early service closure by the MTR Corporation Limited in recent days have deterred many people from going out.

Chairman, the Hong Kong Productivity Council has just announced the Standard Chartered Hong Kong SME Leading Business Index 2019 for the fourth quarter. The Overall Index for the fourth quarter dropped by 7.6 points over the figure in the previous quarter to 31.4 points, hitting a record low. The shrinkage in “Business Condition” out of all the sub-indices is more noticeable, showing that small and medium enterprises (“SMEs”) are facing great challenges, and the business confidence of enterprises remains weak.

While the Government has launched various measures to support SMEs recently, such measures are only able to alleviate the operational pressure faced by enterprises and have failed to completely offset the impacts of the weakening economic fundamentals. Since unemployment statistics very often lag behind the economic cycle, we cannot preclude the possibility that the unemployment rate may climb up from the existing low level late this year, and still less can we preclude the possibility of massive layoffs.

In such a broad economic environment, the Government therefore announced on 15 August its decision to amend the proposed tax concession and increase the tax concession rate for the 2018-2019 assessment year from 75% to 100% while maintaining the maximum amount for each case at $20,000. The Government stated that this additional measure could benefit 1.43 million taxpayers or tax-paying corporations and spare them an additional tax payment of $1.84 billion. Computation shows that some 615 000 taxpayers will still be unable to benefit from this additional measure.

Contrary to what I could do during the Second Reading debate, I am now unable to give a thorough analysis of the tax concession measure and examine how people from various strata can specifically benefit from it owing to the lack of detailed particulars. Fortunately, Secretary James Henry LAU provided Members with one more figure just now: 1.33 million taxpayers are simply not required to  pay any tax. We have no reason to reject this amendment if we only look at the number of taxpayers who can benefit as announced by the Government just now. But I still wish to point out one query also raised by various Members in their speeches during the Second Reading debate or the Committee stage: Why is it impossible for the Government to slightly raise the ceiling, for example, to $25,000 or $30,000 in tandem with increasing the rate of tax concession in its amendment? In this connection, I hope the Secretary can give an explanation based on some clearer statistics in order to convince people.

In any case, this one-off tax concession measure proposed by the Government can help to alleviate the tax burden on people, especially those from lower-income groups. But there is one phenomenon that warrants our attention and that is, since 2000-2001, the proportion of salaries tax revenue in the Government’s income has kept decreasing. Looking ahead, I agree with the Working Group on Long-Term Fiscal Planning (“the Working Group”) in saying that population ageing will present further challenges to our salaries tax revenue. A latest projection shows that the proportion of Hong Kong’s 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.

The Government set up the Working Group in June 2013 and vested it 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. It is still too early to say whether the Government will have to slash the amounts of various tax allowances or raise the tax rate in the end due to this phenomenon. But in the future, it is very likely that the Government will rely more on profits tax rather than salaries tax as its income.

But the tax base of profits tax is narrowing down day after day, and this trend is the same as that of salaries tax. In 2017-2018, only 9% of all enterprises were required to pay tax. This rate was much lower than the 17% a decade before (namely 2007-2008), registering a drop of almost 50%. This phenomenon could be largely attributed to the surging number of registered companies over the previous 10 years in Hong Kong. During the period from March 2008 to March 2018, the number of registered companies doubled and increased to 1.27 million. It is believed that such newly registered companies are relatively small in scale, and as everybody knows, SMEs stand a higher chance of business failure, so most of these companies need not pay any profits tax due to a lack of profits.

In the Budget of this year, the Financial Secretary states that the Tax Policy Unit (“TPU”) set up in 2017 under the portfolio of the Financial Services and the Treasury Bureau will be transferred to the Financial Secretary’s Office and put under its direct purview. TPU’s work carries three major objectives: first, ensuring the convergence of Hong Kong and the international community in taxation system; second, capitalizing on the taxation policy to facilitate Hong Kong’s economic and industrial development; and third, conducting studies on expanding the tax base and increasing income. The top priority among these three tasks is capitalizing on the taxation policy to promote industrial and economic development. As for the question of whether the Government plans to commence any fresh review of the taxation system, I am still awaiting its answer and observing.

Despite all this, I wish to stress here again that apart from introducing the tax concession measure involving nearly $20 billion (an increase of $1.84 billion from the original $18 billion), the Government should expeditiously conduct studies on how to expand the tax base and change the income structure in the long run, while also spending our fiscal surplus with prudence in order to drive local economic activities. This is rather in line with the rationale of sustainable public finance management. Hong Kong people generally think that the public coffer is flooded with money as we now have a surplus of $1,100 billion cash. At present, the public coffer may still be able to cope with the spending incurred by the implementation of various rounds of relief measures and also the possible introduction of further rounds of other relief measures in the future. But will the public coffer “run dry” very quickly in a few years’ time owing to the severe threat to the recurrent income? This merits in-depth studies and examination by government financial officials.

Chairman, I so submit.