Speech at Panel on Financial Affairs

III Briefing by the Secretary for Financial Services and the Treasury on the Chief Executive’s 2023 Policy Address

Committee on the Financing of Major Development Projects and Office for the Financing of Major Development Projects

Members enquired about the composition and proportions of the Committee on the Financing of Major Development Projects (“Financing Committee”) and when the Administration would announce the details, as well as the setting up of and staffing arrangement for the Office for the Financing of Major Development Projects (“Financing Office”). Besides, some Members urged the Administration to provide opportunities for the traditional financial services sector to participate in the financing of major infrastructure projects.

The Administration advised that the Financing Committee, to be led by the Financial Secretary, would mainly comprise the relevant Directors of Bureaux, leaders of regulatory bodies and the Government Economist. The Financing Office would be set up under the Treasury Branch of FSTB and headed by SFST with staffing support from the Treasury Branch. External professionals specializing in the areas of finance, financial analysis and public finance would also be sought to support the work of the Financing Office when necessary. The Financing Office was expected to start its work in earnest in early 2024.

Capital Investment Entrant Scheme

On the introduction of a new Capital Investment Entrant Scheme (“CIES”) proposed in this year’s Budget, Members enquired about the expected number of applications to be attracted and amount of capital to be brought into Hong Kong under the new CIES, the reasons for not considering including property investments made by investors for self-occupation or setting up offices as a class of eligible investments, as well as whether real estate investments made through companies, real estate funds or other financial products would be excluded.

The Administration advised that purchase of real estate had been counted as a class of permissible investments until 2010 under the original CIES, but this had affected Hong Kong’s property market as a result. Under the new CIES, apart from investments in assets such as stocks and funds, the Administration was also considering including assets that would benefit Hong Kong’s long-term development, and the investment threshold under the new CIES would exclude real estate investments while property investments made through real estate funds or other financial products would be covered. Moreover, the new CIES had been enhanced by, for example, adding Renminbi (“RMB”) assets as an investment class to promote the internationalization of RMB. The Government would announce the details and specifics of the new CIES by the end of this year.

IV Tax deduction for Mandatory Provident Fund voluntary contributions made for employees aged 65 or above

Proposed profits tax deduction initiative

Members pointed out that as the salary distribution of employees aged 65 or above was polarized, capping the profits tax deduction ceiling for employers at 30% of the total emoluments of employees might lead to unfairness and abuse. In this connection, Members suggested that consideration be given to imposing a cap on the emoluments of employees in calculating the 30% of the total emoluments of employees.

In response, the Administration advised that: (a) The purpose of setting the ceiling at 30% of the total emoluments of the employee (i.e. equivalent to doubling the prevailing 15% cap) for profits tax deduction under the proposed tax initiative was to allow employers to enjoy full extent of doubled tax deduction, as an incentive to encourage employers to retain/hire mature employees and to make VC for them, thereby helping the latter to increase their retirement savings; (b) Under the current MPF System, all employees aged between 18 and 64 and their employers, except for exempted persons, were required to make mandatory contributions (“MC”). If the age threshold of employees for the proposed tax initiative was to be lowered from 65 to 60, this might not only add to the burden on public finance, but also fundamentally change the policy framework of the entire MPF System, which was currently based on the age of 65 as the watershed; (c) At present, all employees were already entitled to tax deductions in respect of their tax deductible VC under salaries tax and personal assessment, subject to a cap of HK$60,000 per year.