More on the GST Debate

While the Canadian government is lowering the GST and increasing Personal Income tax, the Hong Kong government is doing exactly the opposite.

The newly propsed policy in Hong Kong is aimed to lower middle-class's income tax and by making up the lost revenue in GST.

Again, without doing any number crunching, I believe that Hong Kong is heading the right direction.

--------------------------

`We'll give back as much as we take'

The government will likely give back HK$20 billion generated from a goods and services tax through a combination of reducing salaries and profits tax, a government source said, despite the consultation paper suggesting either one or the other.

Albert Wong

Wednesday, July 19, 2006

The government will likely give back HK$20 billion generated from a goods and services tax through a combination of reducing salaries and profits tax, a government source said, despite the consultation paper suggesting either one or the other.

The government's current proposal embraces a "revenue neutral" principle meaning the public will be able to benefit directly from the new revenue either through improved public spending or reductions in taxes.

While low-income households will receive gains via comprehensive social security assistance, the middle class and businesses are supposed to benefit even more from reduced salaries or profits taxes, or a combination of both.

Permanent Secretary for Financial Services Allan Lai-nin Tuesday said the money would be spent on education, health, social welfare, law and order, and infrastructure. A GST may also mean an abolition of the hotel accommodation tax, which would help the tourism industry, and the reduction of vehicle-related taxes, thereby helping the logistics industry.

Lai highlighted the benefits of a possible reduction in profits tax, claiming this would increase Hong Kong's business international competitiveness.

According to Lai, Hong Kong's profits tax has been increasing while those of neighboring countries have been decreasing, hampering our competitiveness.

Furthermore, businesses are not supposed to be hampered by a GST, "because registered businesses can reclaim GST paid on their business inputs," according to the consultation paper.

Professor KC Chan, from the Business and Management Department at the University of Science and Technology, said the administrative cost of businesses filing GST returns is "not significantly large" and that bigger companies should already have the appropriate mechanisms and accountants to do the job.

But a coalition of businesses and industry representatives fears a GST only spells losses.

Vincent Fang Kang, a Liberal Party lawmaker and chairman of the Coalition Against Sales Tax, said the government's promise to return revenue generated by the GST to the middle class and businesses through possible tax reductions elsewhere was false and misleading.

He warned against "political sweeteners," and doubted whether businesses would ever recoup the money lost through the introduction of a GST.

Fang proposed Tuesday that businesses who support CAST put up posters during the peak Christmas shopping period saying: "This shop says no to GST."

He did not rule out organizing a protest march, but said it would be a last resort. However, he emphasized that he was voicing his personal opinion at this stage, but would vote against a GST notwithstanding the Liberal Party's final position.

Business representatives, such as those who make up CAST and the Federation of Hong Kong Industries, fear a GST will drive away tourists and increase the administrative costs of businesses who must calculate the duty.

FHKI chairman Kenneth Ting Woo- shou expressed concerns about the GST's "adverse effect on Hong Kong's advantageous position as a tax-free shopping paradise."

Chan also warned that "the tax burden is usually shared, and businesses will not be able to pass off the GST to the consumer."

Owing to competition, businesses may not be able to maintain a price increase of 5 percent, and may have to bear some of the GST themselves. And although they "may not collect GST, they are paying GST," because of the duty already imposed by suppliers, Chan said.

"If you ask me: `Do I believe I will recover my losses from a reduction in profits tax?' I say no, I don't believe it," said Brian Li Tze-leung, president of Broadway Photo Supply.

© 2005 The Standard, Sing Tao Media Corporation.