Policy Statement & Submission


Estate Duty Review Consultation Document

20 October 2004

Mr Henry Tang, GBS, JP
Financial Secretary
12/F, West Wing, Central Government Offices
Lower Albert Road
Central, Hong Kong

Estate Duty Review Consultation Document

The Hong Kong General Chamber of Commerce is pleased to respond to the Government's Consultation Document on Estate Duty Review. Our position is strongly in favor of complete abolition of this tax.

Although the Estate Duty represents $1.5 billion in revenue, and we remain deeply concerned about our fiscal imbalance, we nevertheless believe it is both unfair and counterproductive to the development of the financial sector. Development of Hong Kong as the premier financial and asset management center of the region requires that we remove outdated disincentives - to both residents and non-residents - to managing wealth in the SAR. Moreover, the trend in both OECD economies and those in Asia-Pacific is to minimize or eliminate such taxes. Singapore has substantially reformed its Estate Duty legislation while Australia, Macau, India, Malaysia, and New Zealand have abolished the duty altogether. If Hong Kong fails to act, we risk falling behind.

The Consultation Document's emphasis on revenues and societal benefits from the passing of wealthy individuals are at odds with the facts. The one percent of operating revenue this tax represents is less than the potential contribution to reducing the fiscal deficit that would accrue from increased wealth management and the salaries and profits taxes that would flow from such business. Moreover, wealthy individuals are easily able to manage their estates so as to avoid "death taxes". The fact is, the burden of this tax is not on the wealthy, but rather on medium-sized family-owned businesses.

In 2002/03, only two cases involved assets worth over $1 billion. Of the total number of dutiable cases, more than 60% involved duty of less than $2.5 million, which means these estates had dutiable assets below $17 million. These figures demonstrate that the richest in the community do not pay Estate Duty. In reality, the major burden of this tax is falling on a particular section of the community, typically people who have worked hard throughout their lives to save their money, the SMEs & the middle class.

We further disagree with the notion that the Estate Duty is useful in providing the Inland Revenue Department (IRD) with a last opportunity to identify tax evasion cases. It is illogical to use one tax to collect another. If loopholes in the law or its implementation result in tax evasion, then those shortcomings should be addressed directly. In this regard, we have no objection to the IRD requiring that a statement of Hong Kong assets be provided as a condition of obtaining probate or letters of administration.

Abolishing the Estate Duty will give Hong Kong extra advantages as the region's asset management center. This will result in additional business and employment opportunities across different sectors. Without an Estate Duty, Hong Kong's excellent financial regulations and trustworthy institutions will be better able to expand, particularly as the Mainland of China relaxes restrictions on personal capital outflows. It would be folly to miss such an opportunity.

For reasons stated above, we urge the Government to abolish Estate Duty. We do not believe the other options, modifying the existing scope of the tax, would be sufficient to ensuring our place as the Asian half of the world's premier business and financial center. Finally, in managing the elimination of this tax, we recommend that Government publish a timetable, to assist in tax planning.

Responses to the specific questions raised in the Consultation Document are included in the Appendix.

With best regards.

Yours sincerely,

Anthony Nightingale


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