PRESS RELEASE

Final Report of Public Consultation on Tax Reform released

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The Government today (June 12) released The Final Report of Public Consultation on Tax Reform containing a number of recommendations.

The Final Report recommends:-

1. having raised public awareness on the deficiencies of a narrow tax base, the Government should continue to study options for broadening the tax base and address this fundamental issue at a suitable time in the future;

2. in studying the options for broadening the tax base, the Government should take into full account the views collected in this consultation exercise and consult the public further on those options which are more practical;

3. as the problem of ageing population is getting more serious and this would bring additional pressure to our public finances, the Government should consult the public on the health care financing proposals as soon as possible; and

4. to enhance Hong Kong competitiveness, the Government should continue to advance education and manpower training, and should explore sustainable financial arrangements so as to respond to the long-term needs.

"Although the public cannot accept at this point in time for the Government to introduce a Goods and Services Tax (GST), the public has generally obtained a better understanding of the problems of our narrow tax base during the consultation process and agreed that the Government should broaden the tax base to stabilise revenue to enhance fiscal health," a Government spokesman said.

Members of the community have also put forward other options for broadening the tax base such as introducing a green tax, land and sea departure tax, tax on luxury goods, progressive Profits Tax as well as reducing personal allowances under Salaries Tax.

There are suggestions that the Government should not rely on a single option but should deploy a basket of options to broaden the tax base and stabilise our revenue sources. The public does not have any clear inclinations or mainstream views on which option or options that the Government should adopt.

"Although these options can enhance government revenue, none of these could solve the problem of our narrow tax base in the long run," the spokesman said.

In considering the various options for broadening the tax base, we consider that we should take account of the following principles:-

1. The option must be effective in broadening the tax base and providing stable and considerable revenue for the Government to meet its future needs;

2. The option must be fair and in line with the "capacity to pay" principle, and should not widen the wealth gap; and

3. The option is in line with our simple and low tax system so as to attract capital and talent and maintain our competitiveness.

"Although our economy has recovered and the Government's financial position has improved, Hong Kong's dependency ratio would be rising rapidly in the face of our ageing population. Moreover, globalisation would bring challenges to our education and manpower training," the spokesman said.

"In the long run, our narrow tax base would limit our ability to allocate resources to invest for the future and to respond to these challenges. This would affect the stability of our public finances and undermine our competitiveness. Therefore, it is necessary for the Government to address this fundamental issue at a suitable time in future," he added.

During the nine-month consultation exercise ending March 31 this year, about 2,400 written submissions were received. The Government announced during the release of the interim report in early December last year that the Government had not been able to convince the majority of the public to accept GST as the main option to address the tax base problem. Hence, the Government would not advocate GST in the rest of the consultation period but would continue to listen to views on other viable options to broaden our tax base.

The content of the Final Report has been uploaded to the tax reform website (www.taxreform.gov.hk) today.

Ends/Tuesday, June 12, 2007
Issued at HKT 12:10

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