HONG KONG SAR – Media OutReach Newswire – 6 February 2024 – Today, CPA Australia submitted a series of recommendations to the Hong Kong Special Administrative Region Government for the 2024-25 Budget. According to the Institute, Hong Kong will face a fiscal deficit of about HK$127 billion in the 2023-24 financial year, while its fiscal reserves will be about HK$708 billion. CPA Australia urges the government to balance the financial deficit with supporting Hong Kong's economic recovery and sustainable development in the upcoming budget.

Attract regional headquarters and investment

Mr. Liu Mingyang, Co-Chairman of CPA Australia's Greater China Taxation Committee, believes that to improve Hong Kong's public finances, the government must achieve revenue growth by enhancing Hong Kong's overall attractiveness to businesses, investment and talent. Hong Kong should take advantage of its advantages and proactively take measures to attract these companies to set up regional headquarters in Hong Kong, such as introducing a concessionary profits tax rate of 8.25%."

"The Gulf Cooperation Council (GCC) countries offer another opportunity for Hong Kong. Through more intergovernmental dialogue and bilateral cooperation, the government can be more proactive in attracting GCC enterprises and funds to Hong Kong. We recommend that the Government formulate a series of targeted tax incentives, such as a two-year profits tax exemption for GCC enterprises setting up regional headquarters in Hong Kong, to encourage more GCC enterprises to set up operations in Hong Kong. In order to activate the capital market, we recommend that investors be exempt from stamp duty when trading shares of GCC companies on the Hong Kong Stock Exchange for a period of three years. This offer can also be extended to Hong Kong private and listed companies traded by single family offices from the GCC through family investment vehicles (FIHVs)."

"To strengthen Hong Kong's role as a super-connector between GCC countries and Mainland China, the Government can explore with the relevant Mainland authorities whether it is possible to exempt the withholding tax on profits and dividends made by GCC sovereign funds through Hong Kong's investments in strategic industries in Mainland China, such as sustainable development and emerging technologies."

Build a green and vibrant city

Mr. Lau also emphasized the need to focus on building Hong Kong into a green and vibrant city to enhance its attractiveness to businesses and tourists. "Considering that sustainability has become an important factor in investment decisions, the government should continue to vigorously develop a green economy. For example, the Green and Sustainable Finance Funding Scheme, which expires this year, will be extended to continue to subsidize eligible bond issuers and borrowers. The Government may also consider providing a 150% additional tax deduction for the purchase cost of energy-efficient machinery and equipment, and a 150% additional tax deduction for interest expenses incurred in the issuance of green bonds by Hong Kong enterprises."

"To achieve the goal of carbon neutrality, the Government should evaluate the possibility of introducing a carbon emission tax for companies emitting significant greenhouse gases in Hong Kong, with consideration starting as early as 2026. We also recommend that fines and penalties be increased for environmental damage."

To promote Hong Kong's mega event economy, Mr Lau suggested that the Government consider providing a 150% additional tax deduction for event sponsorship costs.

Stimulate the vitality of financial services and review the tax system

"When assessing whether the assets of family investment holding vehicles (FIHVs) managed by single family offices in Hong Kong meet the minimum asset management threshold of HK$240 million required for tax concessions, the government should consider allowing investments in Hong Kong-listed stocks to be included in the total assets at a rate of 1.5 per cent, subject to a cap."

"In addition, we propose to further expand the scope of tax concessions for family offices to include fixed income products, antiques, art, and virtual assets, among others. We also recommend a preferential tax rate of 8.25% on fee income from the provision of services to fund managers and family office managers."

Ms Wang also stressed that Hong Kong should step up the signing of the Comprehensive Avoidance of Double Taxation Agreement (CDTA) with more jurisdictions to reduce double taxation, especially the acceleration of negotiations with Australia.

"This year, the Government will implement the New Capital Investment Entrant Scheme (CIES) to enrich the talent pool and attract new capital inflows into Hong Kong. If other regions that have not signed the CDTA implement tax changes similar to those proposed by Australia, it is likely to discourage the willingness of talented and high-net-worth individuals from these regions to come to Hong Kong. Therefore, we urge the government to invest more efforts in promoting CDTA negotiations with other jurisdictions."

In order to cope with the evolving economic and financial situation, address the ageing population and maintain the health of public finances, Ms Wong, on behalf of CPA Australia, reiterated her call on the Government to conduct a comprehensive review of Hong Kong's current tax system and assess the feasibility of tax reform.

Support small and medium-sized enterprises to speed up their recovery

Mr Chen Mingyan, Co-Chair of CPA Australia's Greater China Tax Committee, said: "Although the overall economy is improving, many small and medium-sized enterprises will need more time to fully return to normal. Some of these companies still face challenges such as cash flow difficulties and labor shortages."

"We propose to extend the application deadlines for 80% Loan Guarantee, 90% Loan Guarantee and 100% Loan Guarantee under the SME Financing Guarantee Scheme for another 12 months, with a view to improving the financing situation of SMEs. Applications for the scheme will close next month."

"To help SMEs cope with the problem of 'hiring difficulties', we propose that the Government provide additional tax deductions for payroll expenses for companies employing employees aged 60 and above. We also recommend that the Government review the Labour Importation Scheme for Industries and consider expanding the scope to cover other industries with severe labour shortages."

"In order to enable workers imported from other cities in the Greater Bay Area to obtain eligibility permits to work in Hong Kong, we recommend that the Government should provide training subsidies to the employers of these imported workers."

Improve the quality of life of citizens and encourage fertility

CPA Australia recommends that the government implement relief measures to improve people's quality of life and encourage fertility. "The government should actively promote health for all, such as introducing a tax deduction of up to HK$6,000 for sports-related expenses," said Mr Chiu Kin-fu, the CPA Australia Regional Taxation Committee.

"To ease the financial burden on taxpayers, we propose to increase the basic personal allowance to HK$150,000, increase the ceiling of the home loan interest deduction to HK$150,000, and increase the other personal allowance under salaries tax in subsequent financial years, at least in line with inflation," he added.

In terms of encouraging fertility, Mr. Chiu urged the government to pay attention to the huge economic pressure that childcare brings to families. "The government must take supportive measures to help families cope with this challenge. Measures that can be considered include introducing a childcare expense allowance capped at HK$60,000, or providing subsidies for childcare and early childhood education for low- and middle-income families."

Appendix – Major Recommendations on the 2024-25 Hong Kong Budget