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Hong Kong: Domestic Corporate Taxation

Sales Taxes

Hong Kong does not currently have a sales tax, but there has been much discussion of the need for one. In March, 2004, then Financial Secretary Henry Tang announced that the introduction of a sales tax was likely to be at least three years away. But the Hong Kong government abandoned plans for a goods and services tax in December 2006.

Tang used his maiden budget speech to make the case for the introduction of a GST-style indirect tax. "Hong Kong's tax base is narrow. In the long run, we need to broaden it to secure a steady source of revenue," he observed, adding that: "In Hong Kong, non-tax revenue accounts for about 40 per cent of total revenue, whereas the figure for OECD economies is around 14 per cent. This shows that Hong Kong has a far heavier reliance than those economies on non-tax revenue, such as land revenue and investment income."

He continued: "Hong Kong is the only developed economy that does not have one. GST is broad-based and equitable, and is capable of yielding a sizeable and steady revenue. Depending on any exemptions, a GST of 5 per cent would generate around $20-30 billion revenue for the government in a full year."

"Besides, being less sensitive than direct taxes to the cyclical movement of the economy, GST can enhance the government's ability to withstand the pressure on public finances brought about by an economic downturn."

Plans for a goods and services tax were shelved however, in the face of widespread public hostility to the idea.

Public consultation has showed that people have concerns that a GST would be inflationary, would be regressive and would discourage tourists.

“We have heard clearly a strong opposition to the GST from the public,” said Tang, adding that the government would still put forward ideas for widening the tax base, something that has been strongly urged on Hong Kong by the IMF and other bodies, but that they would not include the GST as an option.

As of 2012 however, sales tax or GST is not on the government's agenda.



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