Hong Kong Budget 2015/16 - reduced taxes, treasury centres and preparation for exchange of information for tax purposes
Hong Kong’s Finance Secretary, on 25 February John Tsang set out Hong Kong’s Budget for the coming fiscal year 2015/16. In the current tax year the Hong Kong budget enjoyed a surplus of almost HK$68billion though this is expected to fall to approximately HK$38bn in the coming year. The reserves held by the government remain healthy at approximately HK$820bn.
Against a background of economic growth of 2.3%, average unemployment of 3.2% and a 4.4% rate of inflation, Mr Tsang considered that Hong Kong’s GDP is likely to maintain its current level of growth, with an expected decline in underlying inflation to 3% in the coming year.
Measures announced by Mr Tsang included a reduction to the profits tax for the year 2014-15, subject to a ceiling of HK$20,000. While it is expected that the measure will reduce government revenue by almost HK$2 billion, it is expected to boost the Hong Kong economy by 1 percentage point.
Mr Tsang announced efforts to combat cross-border tax evasion in response to OCED pressure and has pledged to adopt the new standard of reporting. Under the standard, financial institutions are required to report on a regular basis, certain specified financial account information to the HK Inland Revenue Department. Taking this step will enable Hong Kong to exchange certain information with other jurisdictions, it is expected, by late 2018. Mr Tsang anticipates introducing an amendment bill in the course of 2016 following a consultation period with the financial services industry on the proposal.
The announcement included plans to contain, and in the future, reduce expenditure by government departments to avoid the possibility of Hong Kong running a budget deficit in the coming years. The current aim of the administration is to stabilise and strengthen its revenue base, if expenditure is to be maintained. Also, in order to boost competitiveness and attract more multinational enterprises to set up their treasury centres in Hong Kong, Mr. Tsang announced that they will amend the Inland Revenue Ordinance to allow, under specified conditions, interest deductions under profits tax for corporate treasury centres and reducing profits tax for specified treasury activities by 50%.
Other measures included in the budget speech included closer economic partnership with mainland China with the objective of furthering measures already introduced between Guangdong and Hong Kong earlier this year. Mr Tsang indicated that the proposed expansion of the airport with the addition of a third runway has his support, the introduction of improved child care services to encourage employment, increased aid for undergraduate training as well as increasing support for health care in Hong Kong.
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