ACCA香港分會

2019/20年度

財政預算案建議

ACCA Hong Kong

Budget Submission 2019/20

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EXECUTIVE SUMMARY .......................................................................................... 1

PROPOSALS ............................................................................................................ 5

1 Initiatives to navigate business through unstable environment ............ 5

1.1 The Belt and Road initiative ......................................................................... 5

1.1.1 Expanding tax treaties network .................................................................... 5

1.1.2 Incentives for regional headquarters / service centres ................................. 6

1.1.3 Incentives to develop Hong Kong as a ‘total solution centre of goods’ ......... 7

1.2 The Greater Bay Area (GBA) development .................................................. 9

1.2.1 Relaxing the eligibility of R&D expenditure for tax deduction ....................... 9

1.2.2 Introducing cash rebate for investments in qualifying activities or assets 10

1.2.3 Supporting start-ups that focus on innovation and research ...................... 11

1.2.4 Tax incentives for developing local intellectual properties .......................... 12

1.2.5 Incentives to attract talents ......................................................................... 13

1.3 Other tax measures to enable a friendly business environment ................. 13

1.3.1 Group loss relief ......................................................................................... 13

1.3.2 Allowing tax loss to be carried back ........................................................... 14

1.3.3 Shortening the statutory time limit of tax assessment to three years.......... 15

1.3.4 Equalising the interest payable upon settlement of an objection ................ 15

1.3.5 Enhancement of tax administration ............................................................ 16

1.4 Supporting environmental business ........................................................... 17

2 Supporting the community ...................................................................... 17

2.1 Introducing two-tier standard rates and widening the income bands under

salaries tax ................................................................................................. 18

2.2 Adjusting personal allowances with reference to inflation .......................... 19

2.3 Aligning the ‘residence’ requirement for dependent parent / grandparent

allowance with that of the monthly Old Age Allowance ............................... 19

2.4 Tax deduction for medical insurance premiums ......................................... 19

2.5 Home loan interest ..................................................................................... 20

2.6 Deduction for cost of employing domestic helpers ..................................... 20

2.7 Balancing our revenue source by diversification to resource /

sustainability tax ......................................................................................... 21

3 Control public expenditure ...................................................................... 21

SUMMARY .............................................................................................................. 23

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1

EXECUTIVE SUMMARY

The global economic landscape has moved into a new and unsettling phase.

With the recent intensifying political conflicts among the major states, the

disruption of the global trade system, the slowing down of economic growth

coupled with depreciation of RMB, devaluation of property prices , the rising

interest rate in the United States and the increasingly fierce competition from

neighbouring countries, Hong Kong is exposed to an unstable economic

climate full of uncertainties and new risks. In order to help us better adapt to

evolving market conditions and safeguard Hong Kong’s competitiveness to

meet future development needs, ACCA (the Association of Chartered

Certified Accountants) Hong Kong supports the underlying rationale of the

Financial Secretary to enhance support for enterprises, preserve

employment and stabilise the economy in his preparation of the 2019/20

HKSAR Government fiscal budget.

ACCA Hong Kong has long been advocating the importance for Hong Kong

to reposition itself on the global stage – the city needs not only to maintain its

traditional strengths as a premier financial and commercial centre, but it also

has to diversify its economic structure and become a world-class innovation

and technology hub. With the city’s new strategic positioning and its unique

role under the Belt and Road initiative (BRI) as well as the Greater Bay Area

(GBA) development, Hong Kong should be well-placed to capitalise the

emerging opportunities in the region.

The BRI provides a good platform for regional and international cooperation

and opens up a wide range of opportunities. Whilst infrastructure projects are

critical in the BRI, investment in these infrastructure projects is of paramount

importance. Hong Kong can play a key role in providing an investment

platform for funding, financing or supporting of the infrastructure projects

under the BRI. In order for Hong Kong to leverage its competitive advantage

to provide such an investment platform, a continuous provision of a

business-enabling environment will be crucial, and a competitive tax system

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is one of the key success factors. In this regard, ACCA Hong Kong considers

that the following measures would help enhance Hong Kong’s

competitiveness especially when compared to its neighbouring jurisdictions:

To expand the tax treaties network and streamline the

administrative procedures for taxpayers to enjoy the benefits

available under the tax treaties;

To introduce incentives for regional headquarters / service centres

in Hong Kong;

To introduce incentives to develop Hong Kong into an international

‘total solution centre of goods’;

To introduce group loss relief so the tax loss of one company can

offset against the assessable profits of another company in the

same group;

To allow tax losses to be carried back;

To finalise the tax loss position within three years;

To equalise interest payable on judgement debt; and

To further digitalise the tax administration.

The Guangdong-Hong Kong-Macao Greater Bay Area (GBA) represents the

growth of a connected economic powerhouse offering tremendous

opportunities to the 11 cities in the area. With the recent completion of both

the Guangzhou-Shenzhen-Hong Kong Express Rail Link and the Hong

Kong-Zhuhai-Macao Bridge, a new level of connectivity is reached and a

new scene for the GBA region is set. While the official blueprint for the GBA

is now expected to be unveiled in early 2019, the development will certainly

advance to the next stage – with clear roles, functions and forms of

collaboration defined for the 11 cities. ACCA strongly supports the HKSAR

Government’s commitment in taking forward the GBA development to

diversify our economy, in particular to become an international innovation

and technology hub, bringing Hong Kong new areas of economic growth. In

this regard, ACCA Hong Kong proposes the following:

To relax the eligibility of qualifying R&D expenditure under the

proposed super tax deduction for R&D expenditure so as to ensure

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a wider application to benefit taxpayers;

To introduce cash rebate for qualifying R&D expenditure;

To introduce cash refund to tax loss incurred by companies

engaged in innovation and technology industry in their early stage;

To support start-ups engaged in innovation and R&D;

To incentivise locally produced and registered intellectual properties

by a lower profits tax rate;

To attract talents, especially those working in innovation and

technology industries; and

To encourage companies employing talents to work in the GBA in

order to facilitate exchange of innovation and technology expertise.

It is equally important to consider the welfare of the wider community. In

particular, to relieve any impact on citizen’s daily lives brought by external

economic changes, ACCA Hong Kong proposes the following measures:

To introduce two-tier standard rates and widen the income bands

under salaries tax;

To adjust different types of allowances to keep pace with inflation

level;

To align the residence requirement for the claim of dependent

parent / grandparent allowance to that of the monthly Old Age

Allowance;

To allow a tax deduction for the premium of medical insurance other

than those Certified Plans under the Voluntary Health Insurance

Scheme, capped at 15% of assessable income;

To remove the 20-year limit on claiming home loan interest

deduction and make it a perpetual deduction;

To allow the dependent to nominate the taxpayer to claim the full

deduction of home loan interest;

To allow a tax deduction for the wages of domestic helper actually

incurred and capped at the minimum wage amount for each year of

assessment; and

To consider gradually balancing our revenue source by

diversification to resource / sustainability tax and shifting the tax

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burden from labour to natural resource use, pollution and

consumption that could help meet the goals of building sustainable

society.

While a number of incentives and initiatives in the Chief Executive’s Policy

Address bring a lot of excitements and expectations, the concern of

containing the public expenditure within an acceptable level needs to be

addressed. It is therefore always advisable to achieve a balanced budget in

the long run.

5

PROPOSALS

1 Initiatives to navigate business through unstable environment

In view of the intensifying political turmoil, power struggles among

major states, disruptive effect of technologies, keen competition

from neighbouring countries and rising of interest rate in the United

States, the Hong Kong business sector is experiencing shrinking

demands, reducing profit margin and increasing operating costs.

Despite these challenges, opportunities arise from the Belt and

Road Initiative (BRI) and the Greater Bay Area (GBA) Development.

ACCA Hong Kong believes that the HKSAR Government should

fulfill its role as a facilitator in the economic development, by

introducing measures to help businesses navigate through this

unstable environment.

1.1 The Belt and Road initiative

With the China Government proposing the strategic development

framework of The Silk Road Economic Belt and the 21st-century

Maritime Silk Road that focuses on connectivity and cooperation

among countries primarily in Eurasia and South East Asia region, it

underlines China's determination of taking a pivotal role in the

global economic affairs. Hong Kong, having a favourable and

strategic geographical location, can be an ideal platform for

businesses to seize the rising opportunities, with support of the

following proposed measures.

1.1.1 Expanding tax treaties network

Hong Kong, with its proximity to China, can act as the springboard

for China outbound investments through expanding its tax treaty

network with various countries. Amongst the 90 countries under this

initiative, Hong Kong currently has only concluded comprehensive

double tax agreements with 21 countries, with 8 countries under

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negotiation. Singapore and Philippines which are amongst the top

20 major trading partners of Hong Kong (as indicated in the Trade

and Industry Department’s statistics) are yet to be included in the

country lists where tax treaties are concluded or under negotiation.

The HKSAR Government should accord priority in the negotiation

and consider entering into tax treaties with those other countries

currently not on the current list, in particular Hong Kong’s major

trading partners.

To ensure taxpayers can truly benefit from the tax treaties, we

suggest the HKSAR Government further considering and

streamlining the implementation details under the tax treaties. The

HKSAR Government should also allocate sufficient resources in the

related administrative procedures required.

1.1.2 Incentives for regional headquarters / service centres

To strengthen the role of Hong Kong as a ‘super connector’

between China and the rest of Asia under the BRI, and to create

professional employment opportunities brought by the initiative to

our next generation, ACCA Hong Kong recommends that the

HKSAR Government considers implementing measures to develop

Hong Kong into a regional hub.

To attract China and foreign investments, some jurisdictions in

South East Asia, such as Singapore, offers a reduced corporate tax

rate of 5% or 10% on income from qualifying activities carried out

substantially by global headquarters, including commitments in

incremental business spending and creation of professional

employment.

The number of regional headquarters in Hong Kong only

demonstrated a mild growth (1,389 in 2014 compared to 1,530 in

2018 according to Census and Statistics Department) over the past

5 years whilst there are over 4,000 regional headquarters in

Singapore. The KPMG Budget 2018/19 report pointed out that

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Hong Kong loses to Singapore as the top Asian location for

multinational corporations to set up regional headquarters as Hong

Kong accounts for 37% whilst Singapore accounts for 46%. In

terms of technology multinational companies (MNCs), the disparity

is more evident as Singapore accounts for 59% of technology

MNCs whilst Hong Kong accounts for only 18%.

To enhance Hong Kong’s competitive edge in attracting China and

foreign investors, ACCA Hong Kong continues to reiterate our

proposal of offering concessionary tax rates (e.g. half rate), coupled

with incentives for individual employees / expatriates, for regional

headquarters’ activities which are of a substantial scale and are of

the nature of investment, general management, financial

management, and marketing with a broad geographical coverage.

Given Hong Kong’s proximity and close connection to the Mainland

and the Asian countries along the 21st-century Maritime Silk Road,

this incentive would lure more China and foreign investors to set up

their regional headquarters in Hong Kong in serving their

investments in the region.

1.1.3 Incentives to develop Hong Kong as a ‘total solution centre of

goods’

In view of the more difficult export market, China will boost more

imports and domestic consumption. Hong Kong can grasp the

opportunity to develop into a ‘total solution centre of goods’ by

leveraging on the characteristics of its territorial tax principle. It will

be helpful if the Inland Revenue Department (IRD) can approve

offshore claims in an equitable and generous manner. For instance

where both suppliers and customers are located outside Hong Kong,

offshore claims should be honoured notwithstanding that the

purchase / sales contracts are effected in Hong Kong. This will not

only attract more business activities to take place in Hong Kong, but

also facilitate Hong Kong to develop as a trading hub for China’s

import and export.

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In addition, with Hong Kong’s over 40 years of unique and solid

cross-border processing / production management experience with

the mainland China, the 50% profits tax exemption doctrine for

“contract processing” should be maintained as investors from the

mainland China and Belt & Road countries would be able to

establish production related hubs in Hong Kong for cross-border

processing / production activities via Hong Kong in order to benefit

from the production resources in the ASEAN, and the Free Trade

Agreements concluded by the ASEAN and Hong Kong.

Since the arrangements of cross-border processing / production

operations and hence the term used to refer to the arrangement

may vary across different countries, the 50% profits tax exemption

should not only be given to ‘contract processing arrangements but

be extended to any cross-border processing / production related

operations managed via Hong Kong where the Hong Kong

companies take up vital functions or create indispensable value to

the operations in both Hong Kong and other jurisdictions.

In the digital age, E-commerce is becoming a popular way in

delivering ‘total solution’ to customers. Hong Kong should not lag

behind as a well-established international trading center. In the

‘Base Erosion and Profit Shifting’ environment, E-commence

companies in Hong Kong may be taxed by overseas jurisdictions.

Rather than waiting for applying for tax credits with the IRD,

companies would find it more helpful and user-friendly if Hong Kong

could proactively offer 50% profits tax exemption to cross-border

E-commerce companies based in Hong Kong.

With the above tax incentives, we should be able to attract more

companies and talents to Hong Kong to maintain and strengthen

our international trading centre status, which will also pipeline more

opportunities for logistics, financial and professional services in

Hong Kong, and facilitate more research and development (R&D)

and Initial Public Offering activities in Hong Kong.

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1.2 The Greater Bay Area (GBA) development

The GBA initiative aims at building synergies among the 11 cities in

the Guangdong-Hong Kong-Macao region. A freer flow of capital,

people and services, and enhanced abilities to penetrate markets

are the leading benefits arising from this initiative. A clear division of

the role for each city is fundamental to the success of the GBA

development and this needs close collaboration and coordination

amongst the relevant authorities. Hong Kong should ride on the

GBA development to diversify its economy and turn itself into an

international innovation and technology hub.

It is encouraging to see new initiatives such as offering Technology

Voucher Programme to subsidise local enterprises in using

technological services and solutions to improve productivity and

transform their business processes. To further support Hong Kong

companies to upgrade their capability and embrace innovation and

technological advancement, ACCA Hong Kong recommends the

following:

1.2.1 Relaxing the eligibility of R&D expenditure for tax deduction

ACCA Hong Kong appreciates the Government’s commitment in

supporting the development of technology and innovation. With the

introduction of super deduction for qualifying R&D expenditure, it

encourages corporations to invest in the development of high tech

products and / or products with significant intellectual property

contents. Moreover, it encourages entities to employ relevant R&D

experts, generating new employment opportunities for our younger

generation in this discipline.

However, according to the IRD’s interpretation of the current tax

legislation, an item of R&D expenditure is only deductible if the

related R&D activities are conducted in-house by the taxpayer, or if

a payment is made to an approved research institute (under the

current tax law) or a designated local research institution. Where

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the R&D work is outsourced and the expenditure is not paid to an

approved research institute / designated local research institution,

the expenditure is not eligible for any tax deduction, even though

the R&D activities may be conducted by another company within

the same group.

This does not appear to fit the rationale of encouraging R&D. In

addition, the choice of a R&D centre may depend on various

commercial factors such as the supply chain availability, especially

under the GBA initiative where R&D activities may be located near

the manufacturing location based in China. This contravenes with

the objective of developing the GBA as one whole economic region.

We therefore recommend that this condition be relaxed and tax

deduction be allowed no matter whether the R&D activities are

conducted in-house by the taxpayer or outsourced to a group

company or a third party located in the GBA which may not be an

approved research institute / designated local research institution.

We recommend that tax deduction also be allowed for those

enterprises which provide R&D services in order to engage more

enterprises in R&D activities. Under such circumstance, allowable

deduction for the payer of the sub-contracting fee will be subject to

an adjustment of the profit margin on the sub-contracting fee paid.

1.2.2 Introducing cash rebate for investments in qualifying activities or

assets

The current R&D Cash Rebate Scheme only applies to Innovation

and Technology Fund project or a partnership project conducted by

the designated local research institutions. Other companies

involving in R&D activities may only benefit from the proposed

super deduction, subject to the various constraints in the eligibility

of the R&D activities.

The result of an investment in R&D may not crystalise in a short

period of time. For some companies in their early stage, they may

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not have sufficient taxable profits to enjoy the super tax deduction

of the R&D expenditures. The HKSAR Government should

consider introducing cash rebate to designated expenditures in

qualifying activities and / or assets including, but not limited to, staff

trainings, development of online businesses, acquisition of

intellectual properties and investment in IT and automation

equipment. This will encourage business to invest in high

value-added activities and enhance sustainability.

Alternatively, a cash refund for tax loss incurred at a company’s

early stage can also be considered. In effect, such a cash refund, a

tax loss carried back or a group loss relief, if available, will help

provide flexibility for companies with insufficient taxable profits in

their early stage to benefit from the incentive. This cash refund and

the tax loss carried back should be mutually exclusive and at the

taxpayer’s choice.

1.2.3 Supporting start-ups that focus on innovation and research

To encourage investments in start-ups on innovation and research,

which in return attract good potential start-ups to domicile in Hong

Kong and help grow Hong Kong as a hub for innovation and

technology, ACCA Hong Kong recommends tax incentives be given

to venture capitals investing in these start-ups.

Some jurisdictions provide tax incentives for investment in early

stage innovation companies, such as in Australia, the Early Stage

Venture Capital Limited Partnership (ESVCLP) program is offered.

Under the ESVCLP, not only part of the amount of investment

would be eligible for tax deduction, the income and capital gains on

the disposal of eligible investments and other income derived are

not subject to tax (note that capital gains are taxable in Australia).

As gains of a capital nature would be outside the scope of charge of

Hong Kong profits tax by definition, in determining such an

incentive, reference can also be made to deduction-based

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initiatives offered in other jurisdictions such as the Angel Investors

Tax Deduction Scheme (AITD) offered by the Singapore

Government, the Angel Tax Incentive offered by the Malaysian

Government, or the incentive of a tax deduction for qualifying

investment offered by the Israel Government.

On the other hand, to encourage more participation of local

universities in R&D projects so as to nurture the next generation as

well as to enhance Hong Kong’s overall capability in R&D in

science and technology, tax deduction can also be considered for

donations made by corporations to local universities in conducting

R&D in science and technology.

1.2.4 Tax incentives for developing local intellectual properties

To help create Hong Kong as the intellectual properties (IPs) hub of

the Asian region, ACCA Hong Kong recommends that apart from

allowing the super tax deduction of the designated expenditures

incurred by companies for the production, creation, registration and

acquisition of intellectual properties, income generated from the

subsequent exploitation of these intellectual properties should also

be subject to a reduced tax rate, i.e. 8.25%.

While the reduced tax rate can help attracting companies to register

/ hold intellectual properties in Hong Kong, it should be granted only

when the relevant development works are undertaken in Hong

Kong. This is critical to ensure this tax incentive complies with the

‘modified nexus’ approach endorsed by the Organisation of

Economic Cooperation and Development.

Despite the fact that Hong Kong has possessed quite a number of

patents, companies in Hong Kong still need to license various IPs

from esteemed licensors in overseas and the mainland China.

These companies may also need to license / sub-license certain

IPs to their outsourced R&D centres or business parties in the

mainland China and overseas.

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To attract more hi-tech companies to Hong Kong so as to develop

Hong Kong into an international innovation and technology hub,

Hong Kong could offer 50% profits tax exemption on cross-border

income from licensing of IPs.

1.2.5 Incentives to attract talents

To attract talents, especially those involved in innovation and

technology, to work in Hong Kong / the GBA, we recommend tax

incentives be given to both the employees and the employers. The

HKSAR Government should lobby the Mainland Government in

respect of the taxation of individuals working in the GBA. The

working visa applications should also be relaxed to facilitate a freer

flow of talents.

To encourage Hong Kong companies employing Hong Kong talents

to work in the GBA so as to facilitate a better exchange of

innovation and technology, tax incentives can also be considered

such as short term cash subsidies to fund their costs for relocating

Hong Kong talents to the GBA.

1.3 Other tax measures to enable a friendly business environment

While other cities and jurisdictions have lowered their tax rates to

increase their competitiveness, Hong Kong should modernise its

tax system and offer a more business friendly tax environment to

attract investors and retain talents. An efficient, fair and transparent

tax administration system is vital to differentiate ourselves from the

others, so as to enhance the attractiveness and appeal to global

businesses and investors.

1.3.1 Group loss relief

ACCA Hong Kong reiterates its proposal for group loss relief to

modernise Hong Kong’s taxation regime as well as to increase its

attractiveness.

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As a matter of commercial reality, it is common to have separate

operating companies established under one or more holding

companies, which are effectively arms or divisions of a central unit.

To achieve tax equity, the taxation of these group companies should

be treated as a single entity so that losses of one company can

offset the taxable profits of another company within the same

group.

Under the current tax system, tax losses can be carried forward

without any time limit for setting off future assessable profits. Hence

a group relief only creates a temporary timing difference in tax

revenue collection.

Such a relief will not only help enhance Hong Kong’s tax

competitiveness as many internationally developed tax regimes

and the regional competitors, such as Australia, Japan, Malaysia

and Singapore, have already implemented similar measures, it also

encourages entities within a group to invest in new R&D activities

which may incur tax loss at its early stage of investment.

1.3.2 Allowing tax loss to be carried back

We also reiterate our recommendation that tax loss of a business

be allowed to be carried back to set off against the assessable

profits in the preceding year. This is in line with a number of

international as well as regional tax systems including the United

States, the United Kingdom, Canada, France, Germany, Australia,

and Singapore.

Allowing tax loss to be carried back encourages new investment

ventures as certain cash flow relief is available to loss making

companies whilst profitable operations are encouraged to invest in

new projects which do not immediately generate profits. This is also

helpful in driving more investments towards R&D in order to build a

conducive eco-system for innovation and technology

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1.3.3 Shortening the statutory time limit of tax assessment to three years.

Currently, the statutory time limit for tax assessment is 6 years, and

this 6 year limitation period does not apply to a statement of loss as

a statement of loss does not constitute an assessment. The IRD

can therefore raise an additional assessment on a taxpayer up to 6

years after the year of assessment or revise a statement of loss

after 6 years. This creates uncertainty to an enterprise in its

business planning and imposes an unreasonable obligation for loss

making taxpayers to keep business records for an indefinite

number of years.

Tax certainty is critical in enhancing our tax competitiveness as

compared to other jurisdictions. Singapore shortened the statutory

time limit from 6 years to 4 years while in Australia, the time limit for

individuals and small businesses is generally 2 years and for other

taxpayers 4 years. In China, the statute of limitations for

unintentional errors is 3 years which will be extended to 5 years if

the amount of tax underpaid is RMB100,000 or more.

To improve tax certainty, we suggest that the statutory time limit be

shortened to 3 years, and a statement of loss should be accorded

the same legal status as a notice of assessment. This means that it

can be objected to and the whole objection and appeals regime

applies. It also removes the onerous obligation of taxpayers to keep

business records beyond 7 years.

1.3.4 Equalising the interest payable upon settlement of an objection

Currently a taxpayer can holdover tax with a condition of the

purchase of a tax reserve certificate in case of an objection. If the

case is ruled in favour of the taxpayer, and the taxpayer receives a

refund from the tax reserve certificate, interest is paid to the

taxpayer on the tax reserve certificate at a rate of 0.25% (on or after

5 November 2018) (on or after 6 August 2018 and before 5

November 2018, the rate is 0.0767%). However, if the tax is

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unconditionally held over and the taxpayer has to pay all or part of

the tax in dispute, interest is charged at the judgement debt rate of

the High Court, currently at 8% which will be revised to 8.088% with

effect from 1 January 2019. This asymmetric treatment is unfair to

taxpayers.

Not only that, but if no tax is held over and eventually the taxpayer

is entitled to a refund of all or part of the tax in dispute, no interest is

paid to the taxpayer in respect of the tax overpaid, notwithstanding

the possibility that it could be years later.

This is obviously a state of inequity to be addressed. ACCA Hong

Kong suggests that the interest rate be uniform across all instances,

whether it is on the taxpayer or on the IRD. To ensure a fair tax

system, tax on the tax reserve certificate, on tax unconditionally

held over, and on tax refunded to the taxpayer should all bear

interest at a uniform rate.

1.3.5 Enhancement of tax administration

Technology is revolutionising the way we live and do business. To

keep pace with the changing consumer behavior and business

environment, the HKSAR Government should introduce more

user-friendly digitalised services including e-filing of salaries,

property and profits tax returns by both the taxpayers and / or their

respective tax representatives. This would reduce the manual

workload of the IRD and help redeploy resources to more high

value added areas, such as the increasing administration work on

the transfer pricing rules and the negotiation for more double

taxation agreements.

We also note that the Inland Revenue Ordinance (‘IRO’) has

recently been amended to deal with the tax treatment for fair value

accounting for financial instruments. In view of the continuous

updates of the financial reporting standards, we urge the

Government to ensure the provisions in the IRO are able to

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interface with the accounting treatment on a timely basis. This

helps to provide better certainty to both the taxpayers and the

practitioners, which is fundamental to a business friendly

environment.

1.4 Supporting environmental business

With the conclusion of the Paris Climate Conference, major

countries in the world, including China, have committed to invest

resources and effort to reduce greenhouse gas emission. Hong

Kong, being one of the financial hubs of the world, should look into

how it can pioneer and lead financial innovation, thus bringing

‘green finance’ into the mainstream.

We acknowledge the HKSAR Government’s effort in promoting

the development of green finance in Hong Kong through arranging

the issuance of a green bond and encouraging investors in the

Mainland and along the Belt and Road as well as international

investors to arrange financing of their green projects through our

capital markets.

To further support the development of green finance, ACCA Hong

Kong recommends the HKSAR Government to encourage scaling

up investments in climate smart development projects through

offering attractive tax incentives. As an environmental protection

initiative, we suggest that a super tax deduction be given to

businesses for eligible costs of plant and machinery or installations

used in environmental protection.

2 Supporting the community

Whilst a number of incentives have been put forward to benefit

businesses, ACCA Hong Kong is of the view that the community in

wide will need to be supported especially when the global economy

is becoming uncertain and employment is largely at stake. It has

long been an issue that less than 50% of the working population

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paid salaries tax, which accounted for approximately 10% of the

Government revenue, and the top 5% of these salaries taxpayers

contributes to 60% of this revenue. ACCA Hong Kong suggests that

tax measures should be introduced to relieve the burden on this

group of people.

2.1 Introducing two-tier standard rates and widening the income bands

under salaries tax

ACCA welcomes the Government’s measures of widening tax

bands for salaries tax to $50,000 and increasing the number of tax

bands to 5 as announced in the 2018/19 Budget. We believe this is

an important step to achieving fairness in tax system, while we

encourage the Government to take a long-term commitment by

introducing two-tier standard tax rates for taxpayers paying salaries

tax.

Currently salaries tax is capped under section 13 (and section 43

under personal assessment) of the Inland Revenue Ordinance to

be the standard rate (that is 15%) on the income before the

deduction of allowance. In order to provide fairness to high income

salaries taxpayers, the cap should be changed to 7.5% on the first

$2 million plus 15% on the remaining chargeable income (that is

two-tier standard rate system in calculating the cap). By

implementing the above cap, the high income taxpayers will have

more tax savings than the lower income taxpayers. Hence to

provide a similar tax reduction for the lower income taxpayers, the

tax bands should be further widened.

By incorporating two-tier standard rates at 7.5% and 15% and the

tax bands be widened under salaries tax, those individual taxpayers

who are currently not taxed at standard rate will be benefited, and

‘fairness’ amongst taxpayers paying profits tax and salaries tax

could be catered.

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2.2 Adjusting personal allowances with reference to inflation

Apart from widening the income tax bands, we also suggest that

personal allowances be increased in order to keep up with inflation

and should be referenced to the annual consumer price index (CPI).

This includes all the personal allowances such as basic allowance

and all other personal allowances.

2.3 Aligning the ‘residence’ requirement for dependent parent /

grandparent allowance with that of the monthly Old Age Allowance

Currently one of the conditions for a taxpayer to be entitled to

dependent parent and grandparent allowances is that the parents

or grandparents are ordinarily residing in Hong Kong. But with the

GBA initiative, more retired people are encouraged to reside in

other cities in the region. To align with the GBA development, we

strongly recommend that the ‘residence’ requirement for claims of

dependent parent allowance and dependent grandparent

allowance be amended to support the elderly who choose to reside

in the GBA to meet their special needs arising from old age.

We propose that the ‘residence’ threshold for the claim of

dependent parent allowance and dependent grandparent

allowance should be aligned with reference to that for the Old Age

Allowance.

2.4 Tax deduction for medical insurance premiums

There is a clear consensus among the community that aging

population is causing increasing pressure on government

expenditure for healthcare and social welfare services and hence

needs to be addressed.

We appreciate the HKSAR Government’s adopting our

recommendation to grant tax deduction of up to HK$8,000 under

salaries tax for medical insurance premiums paid under the

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Voluntary Health Insurance Scheme (VHIS). To encourage more

people to participate in private or public medical insurance and

prepare for their own medical care expenses in future, we suggest

the tax deduction be extended to premiums paid for private health

insurance products other than the ‘certified plan’ under the VHIS,

which can be capped at 15% of assessable income.

2.5 Home loan interest

Under the current tax legislation, where a property is jointly owned

by two taxpayers, each taxpayer is entitled to 50% deduction of the

mortgage interest expense irrespective of who is obliged to the

mortgage repayments. In reality, there are cases where a taxpayer

jointly owns a property with their parents or dependents but bears

the whole mortgage liability. However, under the current tax

legislation, he / she cannot benefit from the interest deduction for

the whole mortgage repayments. We suggest that the HKSAR

Government should relax the home loan interest provision and

allow any direct dependents who do not have chargeable income to

nominate the taxpayer to enjoy the full interest deduction under

such circumstances.

Under the current scheme, home owners are only allowed to claim

home loan interest deduction for a maximum of 20 years only. This

creates onerous obligation of taxpayers to keep track on the

number of years that the mortgage interests have been claimed as

well as administrative burdens to ensure accuracy of the claims.

We suggest removing the 20-year limit and making the home loan

interest deduction on a perpetual basis.

2.6 Deduction for cost of employing domestic helpers

Nowadays, most people in Hong Kong need to work in order to

maintain their living standards especially under the great pressure

of housing expenses. It is almost essential for them to employ

domestic helpers to take care of their families, including children,

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elderly parents and / or disabled dependents, in order to free

themselves for work. ACCA Hong Kong suggests allowing a

deduction equal to the actual wages for employing one domestic

helper, capped at an amount equivalent to the minimum wage of

the domestic helper for each married couple, single parent, or

person with children, elderly parents or disable dependents, for

every year of assessment so as to relieve the burden of the middle

class.

2.7 Balancing our revenue source by diversification to resource /

sustainability tax

ACCA professional insight report: Tax as a force for good:

rebalancing our tax systems to support a global economy fit for the

future, has been released recently which proposes a shift of the tax

burden from labour to natural resource use, pollution and

consumption that could help meet the goals of the Paris Climate

Agreement, the United Nation Sustainable Development Goals and

build an inclusive and circular economy.

Tax structures have a fundamental impact on investment and

consumption decisions. We strongly suggest the HKSAR

Government explore measures to use tax as a means to promote

and encourage environment friendly activities.

3 Control public expenditure

We wish to reiterate the importance of constraining public

expenditure and balancing the Government’s budget. Hong Kong

has been following the principles of fiscal prudence and needs to

keep the budget commensurate with the growth rate of GDP as well

as to avoid any fiscal deficit. According to the HKSAR Government

statistics, public expenditure for 2018/19 is estimated to increase by

21% over prior year while government revenue will decrease by

2.4%. While we note a number of initiatives require significant

investments as well as reduction in tax revenue, we understand

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that these will bring ripple effects to the economic growth such that

the ultimate benefits will outweigh the costs. However, we still urge

the HKSAR Government to prioritise government spending where

necessary so as to utilise the funds in the appropriate directions

and to support the economic development. A mechanism can be

considered to be put in place to review whether there is any room

for cost savings, and to ensure that there are appropriate

allocations of budget to fulfill the genuine needs in particular

sectors.

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SUMMARY

Hong Kong, being a small and open economy, would be vulnerable to changes

in the complex and unstable global political and economic environment. Amid

the unstable and fluctuating outlook, Hong Kong must always remain vigilant

and get ourselves well-prepared for combatting external changes and meeting

future development needs.

The HKSAR Government should play the role of facilitator to help business

and wider community navigate through this unstable economic climate and

mitigate the negative impacts brought about. It should also take a proactive

role to invest for the future long-term strategic development of Hong Kong,

especially in terms of promoting the innovation and technology industry to

achieve economic diversification in order to enhance our capabilities in

grasping new business opportunities.

ACCA Hong Kong believes that a competitive tax system is an indispensable

part of a good Government economic policy, and budgetary measures are

instrumental in driving long-term economic development. The Chief Executive

also recognised in her Policy Address that a simple and low tax regime is one

of the important competitive edges for Hong Kong. As such, the proposed tax

measures we put forward to enhance Hong Kong’s competitiveness follows

this fundamental principle.

While some proposed tax incentives might cause a short-term reduction in

revenue, we trust that all of them are for a good cause and will accelerate

business growth and sharpen our city’s competitive edge in the long run. We

believe our proposals are sustainable within the current fiscal strength and

beneficial to the long term economic prosperity of Hong Kong.