Inland Revenue (Amendment) (Tax Deductions for Domestic Rents) Bill 2022
MR CHAN CHUN-YING (in Cantonese): Deputy President, the Inland Revenue Department sent out 2.47 million tax returns in early June. I believe many members of the public have already received the “green bombs” by post or by email. This year’s Budget brings good news to taxpayers in that it proposes to introduce a tax deduction for domestic rental expenses, namely that deductions concerning salaries tax or tax under personal assessment are allowed for domestic rents, which I believe can alleviate the financial burden of taxpayers who are not owners of domestic properties. Therefore, I will certainly support the Inland Revenue (Amendment) (Tax Deductions for Domestic Rents) Bill 2022 (“the Bill”).
People generally spend their money on clothing, food, housing and transportation, which are also the basic necessities of life. However, in recent years, there has been a substantial increase in various items of expenditures. According to an international survey, Hong Kong has seen an increase of 3% in prices over the same period in the previous year, maintaining the position of one of the cities with the highest cost of living in the world. In the meantime, many people are facing mounting financial pressure with their income being seriously affected by the epidemic in recent years.
I know all along that the Government has introduced a number of tax allowances and tax deduction items to alleviate the financial burden of taxpayers. As early as in 1998, the Government introduced a tax deduction for home loan interest, which benefited many taxpayers who were making mortgage payments. Yet, there has been no corresponding tax deduction items for renters. Against the backdrop of high property prices and rentals in Hong Kong, domestic rents have become the largest expenditure of most Hong Kong families. A survey conducted a few years ago showed that housing costs of households living in Home Ownership Scheme flats and private domestic units accounted for nearly 36% of their household expenditure. The proportion should continue to rise in recent years.
The tax deduction for domestic rents introduced this time is also based on housing expenses. It is mainly targeted at taxpayers who are not owners of domestic properties but have to pay salaries tax or tax under personal assessment, especially those middle class whose income exceeds the limits for public rental housing application yet without enough savings for a home down payment. At present, as property prices in Hong Kong remain high, it is by no means easy for non-home owners to buy their first homes, so they can only rent homes temporarily.
According to the latest government statistics, sole tenants (i.e. excluding public rental housing tenants) account for as high as 44.7% of the total number of households. The Government estimates that about 430 000 taxpayers are eligible for the tax deduction for domestic rents this time. The beneficiaries are broad and targeted.
The tax deduction arrangement for domestic rents under the Bill has also struck a reasonable balance between administrative procedures and scope of reporting. As mentioned by Mr Tommy CHEUNG in his speech just now, the Administration will take proper care of such complicated situations as front-shop back-home, residential property together with a car parking space and even couples living separately. Same as the deduction for home loan interest, the amount of tax deduction for rents is also capped at $100,000. The difference lies in that the former is subject to a 20-year deduction period, while the latter (i.e. the arrangement in this Bill) does not impose a limit for the entitlement period. I think this is also quite reasonable because, as we all know, local property prices have been rising continuously in the past. After owning any properties for 20 years, I believe that the properties will generally increase in value, accumulating a certain amount of assets and wealth for taxpayers. However, people who rent a home can only continue to fight with the rent, which is purely an expense without any appreciation in value. Hence, it is very reasonable not to set a limit for the entitlement period.
Deputy President, the relevant reporting requirements have been included in this year’s tax return, so that taxpayers can report the estimated amount in advance without having to submit the relevant rental documents to the Inland Revenue Department. After the Bill is passed and comes into effect, the relevant tax deduction arrangements can be implemented. The entire tax deduction mechanism for rental expenses will not only relieve the financial pressure of taxpayers, but it is believed that the tax payments they save will most likely flow into the local consumer market, thereby promoting the growth of the local economy. This is undoubtedly a measure beneficial to the people’s livelihood.
However, Deputy President, due to the impact of the war between Russia and Ukraine, global energy prices have soared and the supply chain has been disrupted, resulting in an increase in transport costs. The current inflation rate in Europe and the United States almost hits a double-digit of 10%. The Federal Reserve can only be forced to raise interest rates substantially to curb inflation. Interest rates in Hong Kong are also under short-term upward pressure. It is believed that the burden of “mortgage payers” will continue to increase, and it is only a matter of time before rents are adjusted upward in the face of high inflation. I understand that the tax allowance should not be adjusted casually in the light of short-term economic factors. However, if the trend of global interest rate hikes takes shape and may last for a relatively long period of time, the Government should review the maximum amount of deduction for home loan interest in a timely manner and make reasonable adjustments, such as increasing the tax deduction amount by $10,000 to $20,000. It should also closely examine the rise of rents and review the tax deduction amount simultaneously.
Deputy President, I so submit.