a comprehensive review of the tax system to replace the piecemeal amendment

a comprehensive review of the tax system to replace the piecemeal amendment

The author analyzed the new fiscal year’s Budget in this column last week, pointing out that the government’s recurrent expenditure has increased, but the fiscal surplus has decreased, coupled with the potential unfavorable factors of changes in the external environment, so that fiscal revenue depends on the proceeds of land sales. The increase in stability risks highlights the narrow tax gap in Hong Kong. How to solve this problem is indeed worth discussing.

After the announcement of the Budget, the Financial Secretary responded to the media interview. This year, a number of valuable commercial land and residential land in the Kai Tak Development Area were launched. The implication is that, on the positive side, it is optimistic about the income from land sales in the new year. The income from land sales is “significant" and undoubtedly can effectively pay attention to government expenditures. However, from another perspective, the financial revenue of the SAR Government has so far been dependent on land sales income even in the foreseeable future. There is no other “axe." The Secretary said that this year, a number of high-quality commercial and residential sites were sold and regarded as “good" news, which made the author “a mixed feeling."

High land prices will lead to high property prices

The narrow tax base in Hong Kong is a heavy problem. According to the relevant government financial information of the Census and Statistics Department, in 2017/18, the direct tax revenue reached 208 billion yuan, accounting for 34% of the total income for the year; the land price income reached 164.8 billion yuan, accounting for 26% of the total income for the year, compared with the profits tax of the same year. The income of 139.1 billion yuan will be overcharged by 25.7 billion yuan, which is the “one brother" of the total income of the government; and the stamp duty income mainly related to property and stock transactions is 95 billion yuan, which is more than the property tax and salary in the same year. Taxes and taxes are added up. In the overall operating income, profits tax is ranked second in the main operating income.

Since the Government relies on land sales revenue, the decisive rationally will not “sell" the land. In addition, the shortage of cooked land available for building housing, that is, the ability to curb the rise in real estate prices through land supply, is constrained. Only through demand management, such as the use of additional stamp duty to curb demand. Therefore, no matter how the government denies it, it is very difficult to get rid of the alleged “high land price" policy.

Citizen companies suffer bitter fruit

In the predicament of “high land prices", in addition to the serious disconnect between housing prices and public income, the rental market has inevitably affected the lives of citizens or business operations. Under high rents, the average family can only “sell the price" to rent residential units with smaller areas and more remote areas. As for leased properties or land stores, companies from all walks of life provide services or sell products because they have to offset the high rents. Expenditure, the proprietor will inevitably pass on the operating expenses to the consumers, making the people’s living burden increasingly heavy, and everyone will also taste the current social “bitter fruit."

Reducing reliance on land sales revenue, optimizing Hong Kong’s tax structure, including considering how to widen the local narrow tax base is undoubtedly a problem that needs to be dealt with sooner or later. The new year’s Budget proposes to transfer the Tax Policy Section from the Financial Services and the Treasury to the Financial Secretary’s Office and allocate additional resources as needed (paragraph 106). The author hopes that the tax policy team will be able to “do something."

In fact, a comprehensive review of the tax system in Hong Kong is necessary. Last year, the Legislative Council passed no less than eight tax amendments, which is almost the highest in the calendar year. Since the incorporation of the Inland Revenue Ordinance in 1947, the Government has updated or amended the Inland Revenue Ordinance almost every year. As the new amendments are “sent into" the “Inland Revenue Ordinance", the structure of the entire Inland Revenue Ordinance will inevitably appear to be stacked. Under such circumstances, the current “Inland Revenue Ordinance" appears to be left-right and does not provide a comprehensive and clear understanding of government tax rules for investors and taxpayers.

A comprehensive review of the tax system should cover three aspects. First, examine the government’s overall tax revenue model, and study how to optimize the current taxation mechanism under the inherent concept of taxation. Second, under the current situation of digitalization of goods and services, study how to break through the existing concept of taxation and find A reasonable taxation scheme is introduced to tax the ventures and e-commerce companies. Finally, the government should comprehensively examine whether the tax scheme in Hong Kong is cost-effective and achieve the expected policy effect.

The above mentioned how to optimize today’s taxation mechanism and find a reasonable taxation plan, as well as taxation of Techtronics and e-commerce companies, this column has been discussed in the past, this is not a problem. As regards the amendments to the “fragmented" taxation Ordinance proposed and approved by the Government in the past two years, how many of them have actually received the expected policy effect? The author believes that this issue is worth discussing.

Whenever the new tax legislation is amended at the drafting stage, the Government has only routinely explained to the Legislative Council and the public the additional or reduced existing revenues for the Treasury after the commencement of the new Inland Revenue Ordinance. Results.

Engine idling regulations

The author hopes to use the “Automobile Engine Idling (Fixed Penalty) Ordinance" as an example to try to bring out the importance of the review. The above regulations were implemented at the end of 2011. According to the “parking and idling" Ordinance, the driver should not operate the engine for more than 3 minutes in 60 minutes while parking, and the fine is 320 yuan. The policy objective of the legislation is to improve air quality. Ironically, however, vehicles with diesel engines are currently walking on the road.

What is even more remarkable is that the government has specific exemptions for the ban on idling, including when hot weather warnings and yellow, red or black rainstorm warning signals are in effect, and cannot prevent car engine idling due to uncontrollable mechanical failures. . The relevant government policy bureaus have spent a lot of time and resources to take into account all operational needs and have to implement exemption enforcement mechanisms in certain circumstances.

In the 2017/18 government accounts published by the Government Treasury, the authors found that the government’s general revenue and sub-heading analysis report found that the government’s fine from the fixed penalty system (car engine idling) was only 12,000. yuan! The number of this district is negligible in the government’s huge fiscal revenue.

However, after the drafting of the Government’s drafting regulations, it is necessary to conduct inspections and prosecutions. With various exemptions, it is not only difficult but also costly to implement. We do not rely on the amount of fines received as a basis for policy effectiveness. In fact, the more people comply with the law, the less fine the penalty is received by the Government. The problem is that the air quality in Hong Kong has not improved much.

Seeing the micro-intelligence, the same reason, the Government and its rigorous and fragmentary amendments to the taxation legislation, it is better to make a full-scale inspection as soon as possible, which should be simplified. With the development of the society and the breakthrough of information technology, what new business activities can be developed into new types of taxes, so all kinds of inspections must be made, although this work is not easy, it can even be said to be “painful". However, after suffering, you can see that there is benefit. This is the proper way of governance.

Broaden the tax base and plan ahead

The current external economic situation is uncertain, including the government’s various institutional units have cut economic growth forecasts. Many economic analysts and financial institutions have predicted that the global economy will be quite bumpy in 2019. Fortunately, the Hong Kong SAR Government still has a trillion-dollar fiscal reserve sufficient to meet the government’s public spending of not less than 18 months. At the same time, government spending has grown faster than economic growth. According to the Financial Secretary, the Basic Law regulation, in which public expenditure has exceeded 20% of gross domestic product (GDP), means that Hong Kong’s fiscal balance is not an unreachable “false" problem.

To this end, the SAR Government should seize the opportunity of this “end paragraph" and take a full look at the current tax system and the overall government’s income system, taking into account the financial situation of the SAR Government. A set of institutional and structural reforms. The author hopes that the Government will have the courage to start to consider the above points. I also hope that the Tax Policy Unit will also incorporate these points into the research and publish a research report to the public on a regular basis so that all parties can brainstorm and gain the trust of the people of Hong Kong. It lays the foundation for an effective response to the future development of Hong Kong and the opportunities it faces.