Inland Revenue Amendment No 3 Bill 2018
MR CHAN CHUN-YING (in Cantonese):
Deputy President, just now a few Members mentioned that the Chief Executive has set a goal to double the local gross expenditure on research and development (“R&D”) as a percentage of the Gross Domestic Product to 1.5%, equivalent to about HK$45 billion, by 2022. But as a matter of fact, this percentage is just closely behind those of other advanced countries and regions and we have no idea as to whether their respective percentages will double from 1.5% in a few years.
The Special Administrative Region Government is now prepared to inject a large amount of resources and to amend legislation with a view to attracting more R&D expenditures from private enterprises, so as to create an ambience for R&D development in Hong Kong. Regrettably, Hong Kong’s current pace of development still trails behind those of other rivals. The World Economic Forum released last week the Global Competitiveness Report 2018, in which Hong Kong was given a failure rating in R&D expenditure, with a score of only 25.4 out of 100. This fully illustrates the fact that targets must be complemented with proactive implementation, otherwise, our gap with the rivals will continue to grow. I hope that the Inland Revenue (Amendment) (No. 3) Bill 2018 (“the Bill”) will be passed expeditiously today to attract more R&D investments from private enterprises, breaking the current dominance of public expenditures.
The purpose of this legislative amendment is to implement the legal framework for enhanced tax deduction with regard to qualifying R&D activities. As Mr Charles Peter MOK said just now, before the legislative amendment, only 200 cases of tax deduction claims were made in Hong Kong in a year, involving only about $1 billion of R&D expenditures, a rather small amount. What is required should be 10 or 20 times more. As a member of the Bills Committee, I understand it is not an easy task to meet the target of encouraging private enterprises to substantially increase their R&D expenditures within five years. But I do not think this is a mission impossible. To this end, the Government should first actively draw reference from Singapore in terms of its attitude and experience in handling tax concession measures. It should also adopt a more lenient approach in various policies when dealing with enterprises which intend to make R&D investments. After the policies have been put in place for a period of time, the Government can observe market development before making further adjustments to the policies.
Just like what was mentioned by Mr WONG Ting-kwong a moment ago, during the scrutiny of the Bill, in addition to traditional research institutions such as universities, a large number of other research institutions will apply to become “designated local research institutions” under the legislation. As members of the Bills Committee were worried that manpower constraints and efficiency in processing applications on the part of the relevant government department might result in its failure to handle a large number of applications in a timely manner, some applicants might not be able to enjoy the super tax deduction in the tax year they submit their applications. These members suggested at the meetings of the Bills Committee that a retrospective period for the tax deduction be introduced.With the support of the great majority of members, the Government adopted the suggestion quickly and added a six-month retrospective period in the amendment presented today. I think this attitude is laudable.
Having said that, members of the Bills Committee mentioned other practical situations which deserved the super tax deduction. These include apportionment of R&D expenditures among a Hong Kong subsidiary, local and overseas companies of the same group, R&D expenses in addition to direct costs, such as fees for professional testing and certification services for relevant R&D products, as well as a reasonable extension of the definition of R&D activities. I suggest that the Administration should conduct a preliminary review of the efficacy of the legislation expeditiously after it comes into effect. For example, a review can be carried out to assess if the progress in R&D activities has been accelerated after one year. If the progress has fallen short of expectations, the next stage of legislative amendment should commence expeditiously with a view to widening the scope of the tax deduction further. Otherwise, it will be difficult to achieve the aforementioned 2022 target.
Meanwhile, in the World Economic Forum report mentioned above, I am particularly concerned about “Quality of research institutions”. While Hong Kong was ranked a 25th rank in “Scientific publications” among 140 places, a laudable position, to my dismay, in “Quality of research institutions”, our score was only 10.4 out of 100.
In fact, in retrospect, the Global Competitiveness Report aims at helping all of us know itself and the outside world better in the run-up to the Fourth Industrial Revolution, identify one’s weaknesses, thereby assisting policy makers in formulating measures in accordance with economic development strategies and enhance competitiveness. The findings of this World Economic Forum report have warned us of the need to cultivate an atmosphere for scientific research and innovation in Hong Kong in the future. Apart from the availability of funds for R&D expenditures, it is also very important to groom, import and retain scientific research talent. In this regard, I note that Mr Kenneth LEUNG, Chairman of the Bills Committee, expressed similar views just now, as we believe that this is the key to improving the quality of scientific research institutions in Hong Kong. Only by concerted efforts of those from the Government, private enterprises, the scientific research sector and even the education sector, can we usher in a new era. I hope the Secretary will give more thoughts in this respect.
With these brief remarks, President, I support the Bill and the amendments. Thank you, President.