This year’s budget is a well-balanced one with measures covering both individuals and enterprises in a wide range of industries, with immediate measures to address the challenges brought about by the current epidemic situation as well as longer term measures to pave the path for recovery.
The revised estimated surplus of HK$18.9 billion for 2021/22 amid the epidemic, as compared with the Government’s original estimate of a HK$101.6 billion deficit, comes as a surprise but demonstrates that Hong Kong has a strong financial health, which also means that the city can return to the right track once the epidemic situation is under control. The surplus is partly due to a better-than-expected collection of tax revenue and land premium and partly due to the proceeds from the issuance of green bonds of HK$35.1 billion. The expected fiscal reserves of HK$946.7 billion by the end of March 2022 (equivalent to 16 months of government expenditure) provides a buffer for any additional future spending, especially in view of Hong Kong’s immediate anti-epidemic needs.
In stepping up efforts to deal with the current epidemic wave, the Government will allocate substantial additional resources for a variety of items, such as strengthening testing work, procuring more vaccines and anti-epidemic items, services and facilities, and easing the unemployment situation.
PwC also welcomes the Government’s extension of various anti-epidemic measures, including the repeat of the electronic consumption vouchers, with a generous amount of double that of last year’s. We believe that this will again boost consumer sentiment and encourage spending in the local retail industry, moderately cushioning the impact on Hong Kong's retail sector by the current epidemic wave, while the overall administrative cost involved is expected to be relatively lower this year, with the infrastructure already in place after last year’s introduction.
The proposed measure to prohibit landlords from terminating the tenancy of or not providing services to tenants of specified sectors for failing to settle rents on schedule, or taking relevant legal actions against them, should help resolve the pressing need of affected businesses to a certain extent. While the relevant legislation needs to be implemented expeditiously, careful consideration of the details will be required to ensure that the measure will benefit the specific targets without causing unintended issues for the counterparties.
The tax deduction for domestic rental expenses proposed by the Government will also ease the financial burden of individuals renting domestic properties. The deduction ceiling of HK$100,000 per year is in line with the home loan interest currently allowed for individual property owners. While this is a good start, we hope that the Government will revisit the relief amount from time to time given the continual upward pressure on property prices and rents.
The proposed tax concessions for eligible family investment management entities managed by single-family offices, as well as the half-tax concession for maritime enterprises, will help attract these businesses to establish a presence in Hong Kong. Meanwhile, the budget remains silent on privately offered funds investing in fixed income and credit strategies (including bond funds and private credit funds) which cannot, or have great difficulty to, enjoy the unified profits tax exemption for funds under the current regime. We hope that the Government will consider putting in place measures to address this issue and enable the sustained growth and development of the Hong Kong bond market and the asset management industry as a whole.
Whilst the introduction of a progressive rating system for domestic properties will undoubtedly increase the annual rates of certain property owners, this is not expected to have a wide impact on property owners since the affected properties amount to only around 2% as per Government estimate. This measure, on the other hand, will provide the Government with an additional revenue stream in the long run based on the “affordable users pay” principle.
As part of its pledge to implement the international tax reform proposals under the OECD’s BEPS 2.0 initiative, the Government plans to start the legislative process in the second half of 2022 with respect to the implementation of a global minimum effective tax rate of 15% for large multinational enterprises (MNEs) by 2023. They will also consider introducing a domestic minimum top-up tax with regard to these MNEs starting from 2024/25. Meanwhile, Hong Kong will continue to maintain a simple tax system including the territorial source principle in order to minimise impact on SMEs. We hope that the Government will maintain effective communication with affected MNEs to understand their practical concerns in designing a simplified and effective administrative process to alleviate compliance burden.
Overall in this year’s budget, the Government has shown its commitment to revive the city’s economy, with extensive measures to contain the COVID-19 epidemic, alongside the proposed actions to bolster the city’s long-term competitiveness. To ensure a sustainable development of Hong Kong’s economy, we support the Government’s direction to deploy additional resources to upskill local talent and attract talent from outside of Hong Kong across different industries, as well as to invest additional funds towards building a green city.
We encourage the Government to commit and act on the execution of its proposals to foster economic growth and job creation, and attract talent. Specifically, it is critical how quickly and effectively such measures can be put into implementation for immediate and robust impact.
Find out more
2022/23 Hong Kong Budget