Policy Statement & Submission

Synopsis

In this year's submission to the Financial Secretary on the Government's Budget for the fiscal year of 2010-2011, the Hong Kong General Chamber of Commerce urges the Government to raise the territory's competitive advantages by introducing tax measures which will:

- strengthen our reputation as the premier business centre in this region which offers the lowest and best tax environment
- attract corporations to maintain or set up new headquarters in the Hong Kong
- assist small- and medium-sized enterprises along the road to recovery.

Accordingly, our key recommendations are:

Key Recommendation 1: Return the profits tax rate to 15% immediately

It makes strategic sense to renew our status as the most competitive tax environment in the region. This is particularly urgent considering that our competitors are aggressively lowering their tax rates to attract businesses.

It should be noted that in the Chamber's just completed Annual Business Prospects Survey, the majority of respondents indicated that Hong Kong's competitiveness had not improved in the past year. More worryingly, 60% of those surveyed do not expect Hong Kong's competitiveness to improve in the next 3-5 years. Reducing profits tax to 15% will send a clear signal to the international business community that Hong Kong is determined to maintain its competitiveness, and the businesses which are already here that we want them to stay.

Key Recommendation 2: Introduce group loss relief and loss carry-back

A transparent group loss relief regime for Hong Kong is very much in keeping with global trends. Hong Kong does not provide such tax relief, which places us at a global tax and economic disadvantage. This omission diminishes Hong Kong's attraction as a base for holding companies and discourages Hong Kong enterprises from taking risks and innovation.

Key Recommendation 3: Support SMEs and Encourage Industries

The Chamber stresses that the Government must continue to provide assistance to small- and medium-sized companies to keep them viable during the prolonged recovery. We believe that a pro-ctive, pro-competition measure would be to establish an effective tax rate of 10% on the first $500,000 of assessable income for SMEs. In Singapore, for example, SMEs can benefit from the partial tax exemption on the first S$300,000 of income.

Also, for companies that purchase capital equipment for use in Mainland China, it would provide relief if Section 39E of the Inland Revenue Ordinance is amended to allow claims of tax depreciation for such equipment. Amending Section 39E will also encourage the development of technology-based industries.


Beyond Fiscal Measures

Looking beyond the Budget for the next fiscal year, the Chamber is of the view that the government should not lose sight of a few important matters, all of which concerns Hong Kong' Hong Kong's connectivity with the Mainland and the world.

First, one of the most pressing tasks in front of us is to provide input to the 12th Five Year Plan, through which we should aim to position Hong Kong strategically in China' economic development. Of all the strategic development possibilities for Hong Kong, the development of Hong Kong's financial industry so as to capture opportunities arising from China' needs, maintaining Hong Kong's connectivity with the world and the further integration with the Pearl River Delta are of the highest priorities.

For example, the development of Hong Kong as an offshore RMB centre will be our unique contribution to the internationalisation of the RMB and a key move to propel Hong Kong's financial services industry to a higher plane, capturing the abundant opportunities along the way.

Second, as Hong Kong' economy still heavily depends on external trade, it is imperative that Hong Kong works proactively to maintain its regional shipping centre and entreport status, which is a challenging goal in view of China's ncreasing active initiative in setting up bilateral free trade agreements with its trading partners. Hong Kong needs to take into account these developments, and work with Mainland China to find ways to enable Hong Kong to benefit from the successful conclusions of these FTAs while continuing to contribute to the Mainland economy as a regional shipping centre and entreport. The recent FTA between China and ASEAN countries provides an example of how on the basis of CEPA, a "CEPA-Plus" arrangement can work for Hong Kong in seizing these opportunities and provide a model to expand it to other FTAs relevant to Hong Kong and the Mainland.

Overall, we are of the view that Hong Kong should strive to maintain its connectivity with the world in order to avoid Hong Kong gradually "falling off the map" as global focus is ever more keenly put on the domestic Chinese economy. Hong Kong's intermediary role between Mainland and the rest of the world remains critical, but we desperately need forceful messaging to remind international businesses of our role. We believe a review of the roles and functions of the Government's Economic and Trade Offices around the world is a timely move in this context.

Download the full submission in pdf format