broadening the tax base – reply to the hksar government presented by : yvonne law and stella cho...

Broadening the tax base –Reply to the HKSAR Government

Presented by : Yvonne Law and Stella Cho

Date: 29 March 2007

© Hong Kong Institute of Certified Public Accountants. All rights reserved.

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The Submission

Part A – Non-GST options

Yvonne Law, Chair of Taxation Committee

Part B – The GST optionsStella Cho, Council member and Co- Chair of Working Group on Tax Reform


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Background

Government released consultation document

(July 2006)

Institute set up working group

- Prepare submission

- Inform members on tax broadening issues

- Canvass views from members

- Dedicated website


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Background (cont’d)

- E-letters on key issues & inviting views- Forums, last one attended by FS- Announced survey results

FS said GST not the only or the main option (December 2006)

Submission to government

Consultation ends on 31 March 2007


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Part A – Non-GST options

Increased rates of salaries and profits tax

Decreased personal allowances

Poll taxes

Increased stamp duty on property


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Non-GST options (cont’d)

Capital gain taxes

Taxation of interest income

Tax on worldwide income

Wholesale sales taxes


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Taxes on mobile phones and signboards

Selective consumption taxes

Import / export levy

Financial transactions tax


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Existing options meriting further study

Increased rates on tenements

Increased stamp duty on stock transactions


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New options meriting further study (singly or in combination)

Payroll and social security taxes A single stage retail sales tax Air, land and sea departure tax Green taxes Surcharge on utility supplies Dividend tax


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Why some options are not suitable

Not broad-based Increased reliance on direct taxation Too volatile Easy to avoid Complex Low yield Combination of the above


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Part B - The GST option

Broad support for the proposed GST framework

(reflects many of the Institute’s recommendations)

Single low rate

Credit invoice type

Destination principle

High registration threshold


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The GST option (cont’d)

Commitment to no change for 5 to 10 years

Minimum exemption and zero-rated items

Targeted compensation

Tourist refund scheme


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However, there are

Many unanswered questions

e.g. - Administrative and procedural issues

- Effects on business especially import/export trade

=>creating uncertainty

More information and explanation required


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Issues to be addressed

Lessons from other jurisdictions

Detailed economic and fiscal modeling

Concerns- Impact on low- and fixed-income

groups including retirees- Hong Kong’s competitiveness


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Educating the community

e.g. from direct to indirect taxation means

- greater choice

- encourage saving and investment


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Type of GST system with rationale explained

- Lower rate (e.g. 3 percent)

- Adequacy of compensation package


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Real costs to small- and medium-sized businesses

e.g. - Compliance costs

- Implications for not registering


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Impact on import/export trade

Managing the transition

- Implementation?

- Educational programmes?

- GST support services?


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Unanswered questions:

(1) Structural

- Who would administer the tax

- Roles of the IRD and the Custom & Excise Department

- Training of staff

- Investigation, enforcement and dispute resolution


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Unanswered questions:

(2) Procedural

- Defining registrable entities

- Impact of group transactions

- Arrangement for bad debt relief

- Treatment of goods sold at conventions and exhibitions


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GST and tax reform

Returning net revenue to the community

Reduce profits and salaries taxes

Incentives for business

Benefits for different groups of tax payers and low-income earners

Study on Hong Kong’s competitiveness


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broadening the tax base – reply to the hksar government presented by : yvonne law and stella cho...

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