ACCA (the Association of Chartered Certified Accountants) Hong Kong today delivered the tax-related recommendations for the 2014/15 Budget which will be announced by John Tsang Chun-Wah, Financial Secretary, on 26 February 2014.
The budget proposal focuses on two key areas: enhancing a business-enabling environment; and supporting the community by introducing tax measures of middle-class families.
The coming financial year will see Hong Kong faces a number of economic uncertainties due to the uneven pace of recovery of economies in developed countries. ACCA Hong Kong has long advocated that the Government needs to fulfill its role as a facilitator of economic development and create a business-enabling environment to enhance Hong Kong’s competitiveness. This can in turn foster Hong Kong businesses to grow and survive.
Enhance a business-enabling environment
ACCA Hong Kong fully supports the expansion of tax treaty network by the Hong Kong Government and believes this will help facilitate and strengthen Hong Kong’s position as a region financial and business centre.
To ensure taxpayers can truly enjoy the benefits of tax treaties, Fergus Wong, vice chairman of ACCA Hong Kong, said: 'We suggest that the Government should not only further consider the implementation of tax treaties and streamline the procedures, but also allocate sufficient resources to the related administrative procedures required.'
The tax framework should be changed in time with the change in the business environment. Given the New Companies Ordinance will soon come into effect on 3 March 2014, ACCA Hong Kong urges the Government to conduct a comprehensive study between the New Companies Ordinance and the Inland Revenue Ordinance.
Wong added: 'Under the current tax legislation, the tax treatment of an amalgamation is not clearly specified. A comprehensive study would be more helpful to identify and bridge any discrepancies between these two legislations, to ensure tax certainty for taxpayers.'
Innovation and technology is the future of Hong Kong economic development.
Wong said: 'For this reason, we suggest a super tax deduction of 200% for qualifying research and development expenditure for the innovation and technology industries.'
This helps encourage businesses to invest in significant research and development activities and promote the development of products which are technologically advanced and with significant intellectual property content.
Small and medium enterprises (SMEs) are identified by the Government as a significant contributor to the Hong Kong economy, constituting over 98% of businesses and employing about 20% of the workforce in the private sector.
Wong said: 'We are concerned about the rising business costs and recommend the Government to provide a concessionary profits tax rate to support new businesses in their start-up stage.'
Supporting the community by introducing tax measures of middle class families
Instead of one-off cash rebates, effective tax measures are enablers for the Hong Kong workforce to ease the overall salaries tax burden in view of rising living costs. According to the consultation package issued by the Government, only 45% of the working population paid salaries tax in 2011/12.
Davy Yun, chairman, tax sub-committee of ACCA Hong Kong, said: 'To relieve the burden on this group of people, we suggest that salaries tax income bands should reflect an inflationary adjustment or be widened to $50,000. We also advise that the Government should relax the home loan interest provision and allow any direct dependents who do not have chargeable income to nominate the taxpayer to enjoy the full interest deduction.'
An aging population is one of the primary issues causing increasing pressure on government expenditure for healthcare and social welfare services. ACCA Hong Kong considers that a tax deduction under salaries tax should be given for private medical insurance premiums. This would encourage the public to prepare for their own medical care expenses in the future.
Yun said: 'We recommend that the annual allowable deduction be capped at $15,000 for a single person and at $30,000 for a married couple.'
Most couples in Hong Kong need to work to maintain their living standards, especially when they suffer from the great pressure of housing expenses. ACCA Hong Kong understands that most couples in Hong Kong employ domestic helpers in order to free themselves for work.
Yun said: 'We care about the burden of the middle class, and suggest allowing a deduction equal to the actual wages for employing one domestic helper, capped at an amount equivalent to the minimum wage of $4,010 per month for each married couple or each single parent situation for every year of assessment.'
ACCA Hong Kong believes that the proposals are sustainable within the current fiscal strength and beneficial to the long-term economic development of Hong Kong.
Wong concluded: 'We understand that some proposed tax incentives will cause a short-term reduction in revenue, but we trust that all of them are aimed at the long term objective to sharpen our competitive edge in steering future business growth.'
The ACCA Hong Kong Budget Proposal 2014/15 is available via the 'Related links' section.