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Hong Kong 2017/18 Budget

Dear Sirs,

Hong Kong 2017/18 Budget

The Financial Secretary of the Hong Kong Special Administrative Region, Mr. Paul Chan Mo-po, who took office in January after his predecessor resigned, delivered the 2017/18 budget speech on 22 February 2017. “As a government, it is our responsibility to take a forward-looking perspective and promote social and economic development; it is our duty to exercise fiscal prudence and save for the unpredictable future; and it is our moral obligation to relieve people’s hardship and support the needy,” Chan said. He also announced several one-off measures including a reduction in personal salaries, corporate profits taxes and waiving property levies.

Tax Relief

> 75% rebate, capped at HK$20,000 of 2016/17 final profits tax payable

> 75% rebate, capped at HK$20,000 of 2016/17 final salaries tax payable and tax under personal assessment

> Waiver of rates for four quarters of 2017/18, subject to a ceiling of HK$1,000 per quarter for each rateable tenement

> Tax deduction for the purchase of regulated health insurance products

> Others: see Table 1

Table 1
Salaries Tax/ Personal Assessment Tax
Progressive Tax Rates
Net Chargeable Income              Marginal tax rate
2016/17 2017/18 # 2016/17 2017/18 #
(unchanged)
$0 – $40000 $0 – $45,000 2% 2%
$40,001-$80,000 $45,001-$90,000 7% 7%
$80,001-$120,000 $90,001-$135,000 12% 12%
Over $120,000 Over $135,000 17% 17%
Standard Rate   2016/17 2017/18 #
(unchanged)
15% 15%
Allowances and Deductions 2016/17 2017/18 #
HK$ HK$
Personal Allowances
Basic           132.000            132.000
Married           264.000            264.000
Single parent           132.000            132.000
Child
1st to 9th child
– Year of birth           200.000            200.000
– Other years           100.000            100.000
Dependent parent/ grandparent (aged 60 or above)
Basic             46.000              46.000
Additional (for each dependent living with taxpayer)             46.000              46.000
Dependent parent/ grandparent (aged 55-60)
Basic             23.000              23.000
Additional (for each dependent living with taxpayer)             23.000              23.000
Disabled dependent parent allowance             66.000              75.000
Dependent brother/ sister allowance             33.000              37.500
Deduction (maximum amount)
Self-education expenses             80.000            100.000
Home loan interest           100.000            100.000
 (15 years)  (20 years)
Elderly residential care expenses             92.000              92.000
Contributions to recognised retirement schemes             18.000              18.000
Approved charitable donations  35% of income  35% of income
Profits Tax
Standard Rate 2016/17 2017/18 #
(unchanged)
Incorporated 16,5% 16,5%
Unincorporated 15% 15%
PropertyTax
Standard Rate 2016/17 2017/18 #
(unchanged)
15% 15%
New initiatives
# Legislative amendments needed

Other relief measures

> For the Elderly: One month extra allowance to recipients of Old Age Allowance, Old Age Living Allowance; lower the eligibility age for Elderly Health Care Vouchers from 70 to 65 ; launch 2nd scheme to issue Silver Bond for 2017/18

> For the Underprivileged: one month extra allowance to recipients of Comprehensive Social Security Assistance (CSSA) and Disability Allowance; similar arrangements will apply to Low-income Working Family Allowance (LIFA) and Work Incentive Transport Subsidy

> For the Environment: First Registration Tax waiver for electric private cars will be capped at HK$97,500 (previously no such cap)

Supports for business growth and industry development

> To support Small and Medium Enterprises:

* To extend the application period for the Dedicated Fund on Branding, Upgrading and Domestic Sales for 5 more years to June 2022 to assist Hong Kong enterprises to further business development in the Mainland;

* To extend the application period for the special concessionary measures under the SME Financing Guarantee Scheme to February 2018 to; and

* To raise the cap on the contingent liability of Hong Kong Export Credit Insurance Corporation under contracts of insurance from HK$40 billion to HK$55 billion

> To waive one year license fees for travel agents, hotels and guesthouses, restaurants and hawkers for restricted food permits

> To introduce tax concession to promote aircraft leasing and financing business

> To extend the profits tax exemption to onshore privately-offered open-ended fund companies

> To further explore ways to open up more channels for two-way cross-border RMB fund flows with the Mainland authorities

> To allocate HK$10 billion to develop innovation and technology

> To set up a new committee on re-industrialization and innovation

Setting up of Tax Policy Unit

To set up a Tax Policy Unit within the Financial Services and the Treasury Bureau to align Hong Kong tax practices with international standards; actively study ways to foster the development of pillar industries, industries over which Hong Kong has advantages and emerging industries through tax measures including enhanced deductions for innovation & technology expenditure; and explore broadening the tax base and increasing revenue.

The Financial Secretary said total government revenue for the new financial year 2017-2018 is estimated to be HK$507.7 billion and overall expenditure to be HK$491.4 billion, resulting in an estimated surplus of HK$16.3 billion.

With the high level of uncertainties of the current economic environment, it is important to help the SMEs and some of the sectors including tourism sector and finance sector with some short-term reliefs and supports. In addition, instead of depositing part of the annual surplus into a Future Fund for

unspecified uses, the Government would spend HK$61 billion, or 65% of last year’s surplus, on services for the elderly and the disabled, sports, innovation and technology and youth development. By investing for the future, improving people’s livelihood, and sharing the fruits of success, social capacity of Hong Kong would hopefully be improved. However, to stay competitive in terms of GDP in the longer term, Hong Kong needs to study ways to enhance tax regime and explore broadening the tax base amid rising welfare spending, and we welcome the setting up of Tax Policy Unit to face up to this issue.

Should you have any question, please contact our Rosanna Choi at rosanna@cwhkcpa.com or Silvia Luk at silvia.luk@cwhkcpa.com.

Yours faithfully,

Thomas Wong and Rosanna Choi

CW CPA

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