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Mon, Aug 14, 2006 - Page 10 News List

Tax proposal has HK residents up in arms

AP , HONG KONG

Protesters hold placards with a cross sign on the words ``General Sales Tax'' during a rally against a possible sales tax at a Hong Kong downtown park on Aug. 6.

PHOTO: AP

Walk through Hong Kong's malls and you'll likely see South Korean housewives haggling over handbags, European yuppies slipping into new suits and Americans slurping up wonton soup.

The former British colony has long been a world-famous shop-pers' paradise -- a great place for retail therapy. But some fear the golden credit-card swiping days will soon end if the government pushes through a proposed 5 percent tax on goods and services.

It's already shaping up to be a big battle in one of the world's bastions of low-tax, freewheeling capitalism. Critics say the tax will scare away tourists and hurt the working poor, while officials say the levy is essential for the economy.

Although the government has just started seeking the public's opinion, thousands of anti-tax protesters have already been marching in the streets. It's been hotly debated in the editorial pages. And Finance Secretary Henry Tang (唐英年) -- one of the biggest boosters for the tax -- has seen his public confidence rating plunge.

Proposing the levy is a bold move because Hong Kongers absolutely hate taxes -- it's one of the main reasons why many of them live here.

For decades, the bustling city has attracted thousands of migrants from the Communist mainland who fled political chaos, big government and piddly paychecks.

Hong Kong was allowed to stick to its low-tax, radical capitalist ways even after it returned to Chinese rule in 1997. Only one-third of Hong Kong's 3.4 million workers fork over a salary tax, the government says. Of those who pay, the top 100,000 earners contribute 60 percent of the money.

The tax system needs tweaking because it relies on a narrow revenue base that's extremely volatile, says Frederick Ma (馬時亨), the secretary for financial services and the treasury. Along with salary taxes, the government also makes money from levies on land, business profits and stamp duty.

There's a big problem with these revenue sources: they fluctuate wildly, Ma said.

Over the past eight years, the land premium has swung from HK$5 billion to HK$35 billion (US$643 million to US$4.5 billion) -- a whopping 600 percent, Ma said, with profit taxes varying from HK$38 billion to HK$71 billion, an 87 percent difference.

"Such volatility makes it difficult to plan medium to long-term public services," Ma said.

One of the biggest proponents of the tax is Tang, who recently tangled with Hong Kong's last British governor, Chris Patten, over the tax. While visiting on a book tour, Patten blasted the levy as "socially inequitable" -- an unfair burden on the poor.

About 3,000 people vented their anger last weekend by marching through central Hong Kong in a protest parade. Most of the demonstrators were retailers who complained the goods and services tax (GST) would dampen spending.

"GST will only worsen the inflationary pressures that businesses already face in the light of spiraling oil prices and other skyrocketing operating costs," said Bankee Kwan Pak-hoo (關百豪), chairman of the Hong Kong Retail Management Association.

But Stephen Cheung (張仁良), an economics and finance professor at City University of Hong Kong, said retailers were upset about the government's proposal because it would make it harder to evade taxes.

Cheung said that Hong Kong's top 800 companies -- or 1 percent of the registered businesses -- pay 60 percent of the profit taxes collected. Many of the rest cook their books and claim to be unprofitable and pay no taxes, he said.

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