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Not exactly taxing times
There'll be something for everyone in John Tsang's first budget this month, particularly property owners. Alex Frew McMillan reports
‘‘2007/08 is going to be an absolute record year for the Hong Kong Government.
It will be a gold-medal performance in an Olympic Year''
Tim Lui, tax partner at PricewaterhouseCoopers
These have been good times for the Hong Kong government, which has been passing on some of its largesse to property owners. It has already waived rates for three out of the last four quarters, as well as easing stamp duty.
Now with budget season approaching, it looks like Hong Kongers can expect more good news in the near future. It might be more of the same, and the moves are mostly temporary, but any break on government costs is always a welcome one.
Hong Kong's new financial secretary, John Tsang, will deliver his first budget for the 2008-09 tax year, on February 27. Thanks to the government's overflowing coffers from this past year, he is likely to leave a few more coins in the pockets of property purchasers.
Budget bonanza
The budget is expected to include another temporary waiver of government rates, as well as a one-off rebate for income tax. It may also raise the upper limit qualifying for the lowest rate of stamp duty on property sales.
The Legislative Council (LegCo) has already passed a motion calling on the government to waive rates for all of the 2008-09 tax year, subject to the normal ceiling of HK$5,000 per quarter.
The councillors said in passing the vote last November 14 that the move "will not only alleviate the burden on the public and businesses, but can also avoid creating long-term pressure on government revenue". They are also worried about rising rents.
The motion is more or less just a bit of advice - it isn't binding, and doesn't carry any real power. But a spokesman for the financial secretary replied to the suggestions on January 7, saying the department "will carefully consider them in preparing the 2008-09 budget".
LegCo also asked the administration to review the way rates are calculated. It wants a reduction from the current rate of 5 percent of a property's rateable value, the estimated annual rental value of the property, to somewhere less than that - there was discussion on whether it should be as low as 2 percent.
Tsang should have the firepower to cover himself, if he wants to make these moves.
According to estimates from PricewaterhouseCoopers (PwC), the government's surplus will likely hit a record of more than HK$105 billion for the current 2007-08 tax year, which ends on March 31.
PwC says Tsang is likely to announce a slightly more conservative figure, probably around HK$100 billion. But that would still be four times the government's original estimate. It would also be well above the HK$87 billion surplus that the city posted in 1997-98.
"2007/08 is going to be an absolute record year for the Hong Kong Government," Tim Lui, the tax partner at PwC, said. "It will be a gold-medal performance in an Olympic Year."
The bumper performance should boost the city's reserves of HK$474.3 billion, the accounting firm estimates, enough to fund the government's whole operations for more than two years.
Thanks to the government's bulging bank balance, PwC predicts Hong Kong taxpayers will get a plethora of one-off tax breaks, even more than they did last year.
Reduced stamp duty and waived rates
The last budget reduced the stamp duty on properties worth up to HK$2 million to HK$100 - such a nominal rate had previously only applied to apartments worth less than $1 million.
Now PwC anticipates the government may raise the high watermark to properties worth HK$2.5 million and under.
Of course it is stamp duty - on property, but most importantly stocks - that has accounted for a lot of the surplus. The accounting firm predicts stamp-duty revenue will hit HK$44 billion for this year, almost half of the total surplus, and substantially more than the HK$11 billion from land sales.
The city has the strong performance of the Hang Seng index to thank for most of that. With average daily turnover on the stock market running at well over double the previous year, the government has been taking in more than HK$200 million in stock-related stamp duty collections every day.
The strong income should allow for more tax concessions come the end of February.
Last budget saw a rebate on 50 percent of Hong Kongers' tax bills, up to HK$15,000, for the current tax year. Something similar might be on the cards again.
Last time around, the government also waived rates for the first two quarters, up to a maximum of HK$5,000 per quarter. Chief executive Donald Tsang then applied a similar waiver to the fourth quarter, when he made his policy address meaning property owners only paid rates for three months out of this current tax year.
For this budget, it is therefore likely that government rates due on Hong Kong property could be waived for the entire year.
Government statistics show there are 1,613,000 private residences in Hong Kong on which rates are payable. So the owners of each of these properties should have an extra reason to smile.
On February 27, the top rate of income tax may come down, too, and the tax bands could be extended, so that it takes more income to fall into the higher brackets of earners. Bigger deductions aimed at helping middle-class families may also be factored in.
In case you want to toast that good news with a glass of your favourite tipple, you could be onto a winner there as well - the financial secretary might scrap the city's punitive duties on alcohol imports, which were halved on wine and beer last year but are still high.
Tsang said at a recent tax forum that he was also hoping to combat increasing rents in Hong Kong by ensuring more land lots make their way onto the applications list. This would result in increased land sales and an increased supply of property on the market, which is currently very tight.
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