ACCA Hong Kong’s tax sub-committee co-chairmen review the key announcements in Budget 2019/20, presented by Financial Secretary Paul Chan in February
This article was first published in the April 2019 China edition of Accounting and Business magazine
Hong Kong’s Financial Secretary Paul Chan struck a cautious tone when he delivered the annual Budget speech on 27 February. With the fiscal surplus for the current financial year forecast to be significantly lower at HK$58.7bn – down from HK$138bn in 2017/18 – there were few big giveaways. Instead, Chan announced a number of measures to help reposition Hong Kong’s economy over the medium term.
Below, the three co-chairmen of ACCA Hong Kong’s tax sub-committee – Wilson Cheng, Stanley Ho and Dr Danny Po – give their views on the Budget and look at which recommendations from ACCA’s Budget submission were included in the Financial Secretary’s speech.
Q What were the main highlights of the 2019/20 Budget speech?
DP It was a conservative Budget amidst the challenging global economy. Given the much-reduced fiscal surplus, the one-time measures to address the immediate needs of the community are quite limited. Despite the anticipated deficit in the medium term, the Special Administrative Region government is still committed to investing in the future, in particular, to continuing to encourage the private sector to invest in research and development (R&D) and supporting the financial sector in order to play a strategic role in the Greater Bay Area (GBA).
WC The moving of the Tax Policy Unit to report directly to the Financial Secretary was an obvious highlight. We look forward to the outcome of this move. Overall, it was a well-balanced Budget and I can see the Financial Secretary’s vision for trying to bring up new industries, and encourage innovation and technology.
SH While most of the attention was on the short-term lower surplus, I think the main highlight was the way the Financial Secretary shifted the focus of the Budget to be more forward-looking in terms of the need for innovation, and capitalising on the opportunities for Hong Kong brought by the GBA and the Belt and Road initiative (BRI). I think it was well balanced, although there was nothing particularly ‘wow’ or innovative in it.
Q What were ACCA’s main suggestions for this year’s Budget and which ones have been adopted?
DP We recommended that given the uncertainties created by the US-China trade war, and the opportunities from mainland China’s BRI and the GBA, Hong Kong should develop itself into a supply chain management hub. This proposal was echoed in the Budget speech. However, concrete measures were not mentioned – for example, whether incentives such as partial or full tax exemptions will be provided for such a supply chain management hub.
WC The way the Financial Secretary is spending money is also consistent with what ACCA recommended. We have always said it is not wise to give out cash to everyone. He has not done this, although he has retained some of the relief measures, such as the Comprehensive Social Security Assistance (CSSA) scheme and the old-age allowance. He is spending money in diverse areas, including housing, education and innovation, which will benefit Hong Kong over the long term.
Q What measures were included to help businesses?
WC The waiving of the business registration fees for 2019/20 is specifically to help business. I think what was more important was how the Financial Secretary is looking to change Hong Kong from being focused on its current four pillar industries of financial services, trading and logistics, tourism, and professional services to being more innovative, such as by putting more money into the Innovation and Technology Fund for R&D and regularising the Technology Voucher Programme. It signals a change in mindset. In the past, a very cautious approach has been taken to spending public money, but when you invest in technology you are betting on something that is not currently obvious.
SH The other measures that will help businesses are plans to promote Hong Kong more in ASEAN countries and the signing of more free trade agreements. I am also delighted to see that the Financial Secretary is helping businesses that can see the future, move in that direction and invest in technology through the Technology Voucher Programme by doubling the funding ceiling for each enterprise to HK$400,000.
Q What steps did the Budget take to help individuals in the face of the rising cost of living in Hong Kong?
SH The Financial Secretary did not adjust any tax bands or rates for individuals. Instead, he is relying on tax rebates and is giving an extra one-month payment through the CSSA and old-age allowance to help those that need it. The surplus this year is substantially smaller than last year, so overall, I think it is acceptable and understandable.
WC While there were no new relief measures for individuals, the Financial Secretary did look to address Hong Kong’s accommodation situation. In the past five to 10 years the queue for public housing has continued to get longer and rent in the private sector keeps going up. The announcement to put HK$2bn into supporting NGOs in constructing transitional housing is new and I look forward to seeing its execution.
SH If you look at the medium-range forecast, spending on capital works, such as building housing, is almost double. The government is really committing more resources to land for housing but there will be a time lag before people see the benefits.
Q Why has ACCA welcomed the announcement that the Tax Policy Unit will move to be under the Financial Secretary’s Office?
DP It shows the high attention the Financial Secretary is paying to tax policy as a driver for various measures to boost the further development of the local economy. The move also facilitates strong coordination between different bureaus under the Financial Secretary’s direct supervision to articulate and implement new tax policy and measures.
WC Singapore has used tax policy to drive its economy for many years. In Hong Kong, it will definitely play an important role in changing and diversifying the economy over the longer term. Tax policy is not just about tax reductions but also about setting the criteria for which businesses enjoy these reductions. The Tax Policy Unit plays an important role in taking a holistic view of the economy and what it currently lacks, as well as helping to develop an enterprise growth strategy.
SH The move suggests tax will be rated higher in the overall ranking of government policy. Hong Kong is often said to have a very narrow taxation base. Instead of asking if one type of tax should be introduced or another changed, we should be holistically rethinking the whole tax system. Many countries are currently changing their tax laws, but it has been many years since the Hong Kong tax system was revised.
Q ACCA has long said Hong Kong needs to diversify its economy to become an innovation and technology hub. What other measures would you like to see in this area?
WC We need to keep putting resources into this area to continue to develop the necessary infrastructure. We are lagging behind Shenzhen in terms of both talent and the variety of different enterprises, and we have nowhere near the same number of unicorn enterprises. We need to keep putting money into universities for development and innovation projects, and universities need to offer more programmes in this area. The announcement of HK$5.5bn for the development of Cyberport Phase 5 is exciting.
DP We have been asking for tax losses to be carried backward, which would effectively be a tax refund to encourage the private sector to invest more in R&D and business transformation, and would mean businesses would not be discouraged by operating losses in the first few years.
SH With the GBA, we would also like to see Hong Kong collaborate more with southern China, particularly Shenzhen, as they have a lot of capabilities and resources. We would like to see measures to help Hong Kong attract talent, as well as a tax incentive that drives collaboration between Hong Kong and Shenzhen to develop synergies between the two locations.
Q What were the biggest missed opportunities in this Budget?
WC I would have liked the Financial Secretary to do more on the cultural side, such as putting money into film development. This is an industry in which Hong Kong has been very successful in the past. Assistance should not just be about money but also developing an ecosystem for the industry to encourage the development of films in Hong Kong and to attract and nurture talent. The gaming industry is another area that we should focus on. The government should identify ways to help incubate companies in this sector.
SH I would like to have seen more measures to help the younger generation capture the opportunities that will be created by BRI and GBA. I would also like to have seen moves to tackle Hong Kong’s overburdened healthcare system.
DP The Budget stated that there are still around 9,000 empty property units, but the Financial Secretary made no indication when the vacancy tax will be introduced.
Interview by Nicky Burridge, journalist
"The Financial Secretary shifted the focus to be more forward-looking in terms of the need for innovation"