What it means to you

2018/19 Hong Kong Budget

The Financial Secretary has announced the 2018/19 Budget, outlining the government’s plans for the economy and proposals for changes to taxation. To keep you ahead of change, our subject-matter experts share their insights on how it impacts you as a business, an industry and an individual.

Our commentary and analysis

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Budget snapshot


Budget highlights

Consolidated budget forecast
       

2017/18

Original forecast

2017/18

Revised forecast

2018/19

Forecast

2022/23

Forecast

Surplus of HK$16.3 billion  Surplus of HK$138 billion  Surplus of HK$46.6 billion Surplus of HK$20 billion

2017/18 surplus (HK$138 billion) consists of:

2018/19 surplus (HK$46.6 billion) consists of:  2022/23 surplus (HK$20 billion) consists of:
  • HK$64 billion surplus on operating account
  • HK$14.6 billion surplus on operating account
  • HK$11.6 billion surplus on operating account
  • HK$74 billion surplus on capital account
  • HK$32 billion surplus on capital account
  • HK$8.4 billion surplus on capital account

By the end of 2022/23, the government projects fiscal reserves of approximately HK$1,222.6 billion (equivalent to 21 months of government expenditure).

Operating expenditure forecast
     
2017/18 2018/19 2022/23
HK$372.9 billion HK$441.5 billion HK$557.1 billion

Total public expenditure is 21.2% of GDP for 2018/19, and will be kept at around 21% of the GDP going forward. The operating expenditure for 2019/20 and beyond represents the forecast expenditure requirements for the HKSAR Government.

Economic indicators
       
  2017 2018
Forecast
2019 to 2022
Medium range forecast
Increase in real GDP 3.8% 3% to 4% Average 3% per annum
Underlying inflation rate 1.7% 2.5% Average 2.5% per annum

Profits tax

  • Profits tax rates for companies (16.5%) and unincorporated businesses (15%) remain unchanged.
  • Extend the profits tax exemption for qualifying debt instruments to cover instruments with maturity of any duration and Hong Kong listed debt securities.
  • Review the existing tax concessions applicable to the fund industry with regard to international requirements on tax co-operation while providing a more facilitating tax environment for the fund industry in Hong Kong.
  • Provide full tax deduction for capital expenditure on eligible energy-efficient building installations and renewable energy devices in the first year instead of over a period of five years.
  • Examine the feasibility of introducing a limited partnership regime for private equity funds and the related tax arrangements.
  • Explore ways of enhancing Hong Kong's competitiveness as an insurance hub, including tax arrangements.

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Salaries tax

  • No change in the standard tax rate.
  • Widen the marginal tax bands from HK$45,000 to HK$50,000, increase the number of tax bands from four to five and adjust the progressive tax rates to 2%, 6%, 10%, 14% and 17% respectively.
  • Increase the basic and additional child allowances from HK$100,000 to HK$120,000.
  • Increase the dependent parent/grandparent allowances to:
    • HK$50,000 (for each parent/grandparent aged 60 or above and not residing with the taxpayer) and HK$100,000 (for each parent/grandparent aged 60 or above and residing with the taxpayer)
    • HK$25,000 (for each parent/grandparent aged 55 to 59 and not residing with the taxpayer) and HK$50,000 (for each parent/grandparent aged 55 to 59 and residing with the taxpayer).
  • Introduce a personal disability allowance of HK$75,000 for eligible taxpayers.
  • Increase the deduction ceiling for elderly residential care expenses from HK$92,000 to HK$100,000.
  • Relax the requirement for the election of personal assessment by allowing married persons the option to elect personal assessment separately.
  • Provide tax deduction for the purchase of deferred annuity products and voluntary contributions to the Mandatory Provident Fund.
  • Provide tax deduction for the purchase of eligible products for taxpayers themselves and their dependants under the Voluntary Health Insurance Scheme, with an annual deduction ceiling of HK$8,000 per insured person.

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Other taxes

  • Extend the current full waiver of the first registration tax (FRT) for electric commercial vehicles until 31 March 2021.
  • On top of the current FRT concession of up to HK$97,500 for electric private cars, launch a “one-for-one replacement” scheme under which eligible private car owners buying a new electric private car and scraping an eligible private car they own can enjoy a higher FRT concession of up to HK$250,000. These concessions will be effective until 31 March 2021.

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One-off measures

  • Waive 75% of profits tax for 2017/18, subject to a ceiling of HK$30,000.
  • Waive 75% of salaries tax and tax under personal assessment for 2017/18, subject to a ceiling of HK$30,000.
  • Waive rates for the four quarters of 2018/19, subject to a ceiling of HK$2,500 per quarter for each rateable property.
  • Provide two additional month of Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance and Disability Allowance. Similar arrangements will apply to Low-income Working Family Allowance and Work Incentive Transport Subsidy.
  • Provide a one-off additional HK$1,000 worth of elderly health care vouchers to eligible elderly persons in 2018/19.
  • Provide a one-off grant of HK$2,000 to each student in need.
  • Pay the examination fees for candidates sitting for the 2019 Hong Kong Diploma of Secondary Education Examination.

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Others

  • Enhance various current funding schemes for small and medium enterprises (SMEs), including extending the application period for the special concessionary measures under the SME Financing Guarantee Scheme to 28 February 2019.
  • Reserve HK$50 billion for supporting innovation and technology development in Hong Kong, focusing on the areas of biotechnology, artificial intelligence, smart city and financial technologies.
  • Set aside a dedicated provision of HK$500 million to develop the financial services industry.
  • Launch a three-year Pilot Bond Grant Scheme to attract local, Mainland and overseas enterprises to issue bonds in Hong Kong, with the amount of grant for each bond issuance equals to half of the issue expenses and capped at HK$2.5 million.
  • Inject HK$1 billion into the CreateSmart Initiative to support the development of the creative industry.
  • Set aside HK$15 billion to effect the abolition of the arrangement for offsetting severance payment or long service payment against Mandatory Provident Fund contributions.
  • Earmark HK$300 billion to support the second 10-year hospital development plan.
  • Earmark HK$20 billion for the improvement and development of cultural facilities.
  • Allocate HK$2.5 billion for the Matching Grant Scheme to support the 10 publicly-funded post-secondary institutions.
  • The 2018/19 Land Sale Programme will include 27 residential sites (of which 12 are new ones) and four commercial/hotel sites.

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The information in this booklet is based on taxation laws and practices as of 28 February 2018 and incorporates legislative proposals and measures contained in the 2018/19 Hong Kong Budget announced on the same date.

Note: Legislative proposals do not become law until their enactment and may be modified by the Legislative Council before being enacted.

Our spokespersons

Charles Lee

China South and Hong Kong Tax Leader, PwC Hong Kong

+[852] 2289 8899

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Agnes Wong

Hong Kong Tax Partner, Hong Kong, PwC Hong Kong

+[852] 2289 3816

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Jeremy Choi

Partner, Hong Kong, PwC Hong Kong

+[852] 2289 3608

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KK So

Partner - Tax Services, Asia Pacific Real Estate Tax Leader, Hong Kong, PwC Hong Kong

+[852] 2289 3789

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David Smith

Senior Advisor, Hong Kong, PwC Hong Kong

+[852] 2289 5802

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Julia In

Senior Manager, PwC Hong Kong

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