INLAND REVENUE (AMENDMENT) (TAX CONCESSIONS AND TWO-TIERED STANDARD RATES) BILL 2024
Deputy President, in relation to the three proposals under the Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Bill 2024 (“the Bill”), namely the increase in the deduction ceiling amounts for home loan interest and domestic rents, the one-off tax concessions and the implementation of a two-tiered standard rates regime for salaries tax and tax under personal assessment (“PA”), I hereby tender my views for the authorities’ consideration.
The birth rate in Hong Kong has remained low in recent years. To encourage childbearing, the Government has launched the Newborn Baby Bonus, under which a cash bonus of $20,000 will be offered for a period of three years to eligible parents with babies satisfying the requirement on the timing of birth. In addition, the Government also intends to encourage childbearing through a combination of measures, including the provision of priority selection and allocation of subsidized flats, strengthening childcare support and increasing tax concessions, in the hope of increasing the incentives for childbearing.
It has been proposed in the Policy Address last year that taxpayers who have a child meeting certain eligibility criteria are entitled to have their corresponding deduction ceiling amounts for home loan interest and domestic rents raised from $100,000 to $120,000. When compared with the cost of raising a child, the deduction ceiling amount of $20,000 is insignificant, but it does serve as a demonstration of the Government’s goodwill. It is hoped that this will encourage more young families to actively consider adding a new member to their family, though I believe the actual stimulating effect will be limited.
On another front, successive interest rate hikes in the United States have led to repeated increases in Hong Kong’s mortgage interest rate, thus increasing the cost of mortgage repayment for the public. However, the maximum amount of home loan interest deduction is still maintained at $100,000 per annum, resulting in the tax concessions being completely eroded by the high interest rate. Meanwhile, domestic rents have continued to rise in successive months due to the drop in property transactions and the favourable response to schemes such as the Top Talent Pass Scheme. According to the statistics of the Rating and Valuation Department, the rental indices for domestic units have increased by 7% year-on-year in 2023, meaning that the enhanced deduction ceiling amount for domestic rents will be massively offset by the rising rents. Thus, last year, when I submitted my Budget proposal, I have expressed that the Government could face up to the financial burden on mortgage payers and tenants as a result of high interest rates and rising rents.
In addition to the $20,000, I hope that due consideration can be given to exploring other avenues to provide concessions to other taxpayers.
Meanwhile, given that the pace of economic recovery has been uneven, the Budget intends to propose one-off reductions of salaries tax, tax under PA and profits tax for taxpayers by 100% for the year of assessment 2023-2024, subject to a ceiling of $3,000 in each case. Compared with the past few years affected by the epidemic, the scale of reduction this time around is substantially reduced. In any case, this measure will still help alleviate the burden on general taxpayers. I understand that this kind of concession is more flexible than actually reducing the salaries tax rate at each income band, so that the Government can make adjustments based on the economic and social conditions each year. I believe people can understand that the Government must scale down the handouts this year, given that the epidemic has subsided. However, can the Government abolish these concessions altogether when the economy improves? By that time, will any scaling down of the concessions cause the Government to be criticized for neglecting the feelings of the young people just joining the workforce and the middle-class taxpayers? I hope that the Government can have a better grasp of the amount of concessions to be offered.
In order to increase government revenue, the Government has proposed in the 2024-2025 Budget to implement a two-tiered standard rates regime for salaries tax and tax under PA, with the standard rate for the portion of income exceeding $5 million increasing to 16%. The proposal is expected to bring in HK$910 million of additional revenue for the Government.
Hong Kong’s finances have been in the red for a few years, so it is inevitable that we have to cut down on expenditure. I do not think the proposal to increase the tax on some high-income earners will cause a big controversy, as it is in line with the principle of “affordable users pay”. However, the reason why Hong Kong has always been favoured by investors from different regions is that our tax regime is simpler than those of other tax jurisdictions, and the SAR Government has all along endeavoured to maintain a low tax policy. However, due to the development of the international tax landscape in recent years (especially the pressure from the European Union), Hong Kong’s tax system has already suffered considerable impact, and this adjustment has also opened a gap, which requires the Bureau and the Government to carefully take control and adjust in the future, so as not to turn into a persistent trend.
In my Budget proposal, I have mentioned another tax genre that is in line with the “affordable users pay” principle. I have suggested that consideration be given to increasing the tax rates on the purchase of high-end cars, yachts or luxury flats. It is because while taxpayers may have to accept the increase in salaries tax rates, the purchase of high-end products is a discretionary consumer behaviour, and taxation on such purchases is an active realization of the “affordable users pay” principle. I hope that the Government can further follow up on this suggestion.
Deputy President, I support the passage of the Bill, but I hope that the Government will continue to monitor the possible impact on Hong Kong’s competitiveness caused by the tax concessions and the two-tiered standard rates regime, and that it will consider introducing other non-taxation measures in due course, so as to maintain Hong Kong’s attractiveness to international investors and talents.
With these remarks, Deputy President, I so submit. Thank you.