Hong Kong yesterday took its long-expected first step toward widening its tax base to meet the future needs of an aging population, announcing plans for a goods and services levy.
Financial Secretary Henry Tang (唐英年) issued a consultation paper seeking the public's views in introducing the new charge to Hong Kong's famously low tax environment.
"For many years we have been overly reliant on a limited number of widely fluctuating, cyclical sources of revenue," Tang said.
PHOTO: AFP
"The introduction of a GST [goods and services tax] is a viable option for Hong Kong. This would secure the long-term sustainability of our revenue base and our capacity to meet public expenditure needs," he said.
Although Tang gave no indication of what the rate would be set at, sources close to the finance chief reportedly believe it will be a figure that would raise some HK$30 billion (US$3.8 billion) in extra revenue.
The document proposes imposing the levy while reducing other tax burdens. It proposes cuts in income tax for the less well-off, raising thresholds for businesses and extending tax relief on mortgage payments.
Tang said that a GST would have only a temporary and modest impact on household living costs.
For example, a 5 percent sales tax would produce a one-off, short-term increase in prices estimated at about 3 percent, he said.
Hong Kong is expected to hit a revenue crunch in the near future as experts forecast its working population will shrink to the point where the government will have difficulty generating enough revenue to support an increase in people requiring state support.
Tang was jeered by protesters as he entered the legislative building to announce the start of the nine-month consultation period.
Brandishing banners that accused him of robbing the poor to pay the rich, protesters said a sales tax would decimate the booming tourism industry by making shopping in Hong Kong -- one of its biggest draws -- less attractive.
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