Financial Secretary Paul Chan presented the government’s 2022-23 Budget on 23 February. With the severe impact of the fifth wave of the pandemic, the focus was on an expansionary fiscal policy, actively helping the public to cope and tackling the economic downturn. We were pleased to see the financial secretary responding to a number of proposals put forward in the Institute’s 2022-23 budget submission.
Targeted relief measures to help tide the community over difficult times
Given the deteriorating COVID-19 situation, the financial secretary introduced a raft of relief measures to mitigate the negative impact on businesses and individuals. This included another round of the Consumption Voucher Scheme (CVS), with an increased amount of HK$10,000. Since the CVS proved effective in stimulating local consumption, the Institute also proposed another round this year.
The Institute welcomes the proposed tax deduction for domestic rental expenses, with an annual ceiling of HK$100,000. This is something that we have pushed for. Assuming the smooth passage of legislation, this concession will start from the assessment year 2022-23. It will give home renters, for the first time, a benefit equivalent to that available to homeowners with a mortgage.
A novel, and perhaps more controversial, proposal is for a three-month rental enforcement moratorium to help businesses struggling to pay their rent. The financial secretary said that banks will be asked to exercise flexibility if landlords face problems in repaying their loans owing to a reduction in their rental income.
To assist businesses facing temporary cash flow difficulties now, but which made profits in prior years, the Institute had advocated a temporary tax loss carryback scheme.
Improving the tax system to stabilize the economy in the long run
Responding to the international tax developments, the government announced that it would introduce legislation to implement the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) 2.0 recommendations later this year. Aligning with the BEPS 2.0 “Pillar Two” recommendations, the government is considering introducing a domestic “top-up” tax in 2024-25, to ensure that large multinational companies pay a certain minimum effective tax rate globally. We echo the financial secretary that this will not only increase the government’s revenue (by around HK$15 billion annually), but will also protect Hong Kong’s taxing rights.
Furthermore, the government is proposing to reform the property rating system, including introducing a progressive rating system, aimed at levying higher levels of rates on those properties with greater rental value. While, in principle, this sounds fair, the impact of progressive rates depends on the specifics of how the system is implemented. Further public consultation should be conducted on this proposal.
These measures should help enhance the financial position of the government, as revenues have not kept pace with the growth in public spending in recent years.
However, the government’s main sources of revenue, particularly, income taxes, land and property-related revenues, and investment income, continue to be volatile and subject to uncertain local and external economic factors. Therefore, the Institute continues to advocate a more extensive review of Hong Kong’s tax system and public revenue model, to address the narrow tax base and ensure that public finances remain resilient to any future shocks.
Looking ahead, the financial secretary highlighted several important themes, including innovation and technology. Among other measures, the government will be setting up a Digital Economy Development Committee to accelerate the progress of the digital economy. The Institute certainly supports efforts to advance the progress of the digital economy, and had proposed that small and medium enterprises be given more practical help and resources to digitalize their operations.
We are pleased to see funding of HK$135 million to be given to the Hong Kong Trade Development Council over the next three years for the Support Scheme for Pursuing Development in the Mainland. This will facilitate Hong Kong business people, professional services practitioners and entrepreneurs in the Mainland to take up opportunities there, with a priority accorded to cities within the Greater Bay Area (GBA). Along similar lines, the Institute had called for a dedicated GBA fund for professionals, to support business promotion and development in the region.
Pathways to net-zero carbon emissions
The Institute supports the budget’s sustainability measures, including the injection of an additional HK$1.5 billion into the EV-charging at Home Subsidy Scheme, for the installation of electric vehicle charging stations in residential buildings, and extension of the scheme to 2027-28. We had called for this measure, as it is clear that the demand for charging stations far exceeds the supply.
To support the objective of net-zero carbon emissions by 2050, we had also recommended enhanced allowances for energy-efficient industrial and commercial buildings, given that buildings in Hong Kong are among the main energy consumers.
The way forward
In essence, this was very much a budget of relief measures, albeit with one eye on the future. This is understandable and supportable, as the community needs to continue fighting the virus with its full strength. In the short term, there will inevitably be another slowdown in the economy and, while remaining positive, we must brace ourselves for the uncertainties ahead.