PRESS RELEASE

FS speaks on public consultation on tax reform

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Following is the transcript of remarks (English portion) by the Financial Secretary, Mr Henry Tang, on public consultation on tax reform at the Central Government Offices this morning (December 5):

This morning, I have reported to the Executive Council on the interim review of the public consultation on tax reform. I will be a little bit briefer on the English version because I will hand out my speaking notes to you after I finish.

In the nine-month consultation on tax reform which started in July, we have collected 2 200 written submissions and attended 260 meetings and seminars. We have received a lot of views from the public. We thank everyone for their views and observations.

First, the public has two very clear but differing views. The majority of the public understands that our tax base is narrow and agrees that this problem has to be addressed. By broadening the tax base, we can stabilise our revenue and also improve our public finances. This would minimise the impact on our public finances were we to face any economic downturns sometime in future. The public's views on this are very clear. But on the other hand, the majority do not consider that the Goods and Services Tax is an appropriate option to solve the tax base problem. This view is again very clear. These two views suggest that the public understands that there is a problem with our tax base, as pointed out by the Government. It needs to be addressed, but they have considerable reservations over the use of Goods and Services Tax. Both views should be respected.

As to how the tax base problem should be solved, there is no consensus among the public. But there is a consensus in the community on the problems of our narrow tax base. The public recognises the importance of planning ahead and the need to save for a rainy day. But the views are also strongly against GST to solve the problem.

To conclude, there are two main points. First, the public shares the view that there is a need to broaden our tax base. Second, although the public understands that GST can broaden our tax base, it is clear from the views collected that we have not been able to convince the majority to accept GST as the main option to address the tax base problem. We accept that at this time there is insufficient public support nor are the conditions right for introducing GST.

Hence, for the remaining part of the consultation, we will not be advocating GST. We hope the public will continue to provide views on other options which we have uploaded onto the tax reform website, based on the report in 2002 done by Moses Cheng. It listed out in a table form the pros and cons of a number of other options. We welcome the public to download it and use it as a reference for discussion. We will continue to listen carefully and participate in the discussions, so that by March next year, upon the conclusion of the consultation, we will draw up a report for consideration by the Government of the next term. Thank you very much.

(Please also refer to Chinese portion of the transcript.)

Ends/Tuesday, December 5, 2006
Issued at HKT 12:37

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