23 September 2019
The Hon Mrs Carrie Lam Cheng Yuet-ngor, GBM, GBS
Hong Kong Special Administrative Region
Dear Chief Executive
Policy Address Submission
We appreciate the opportunity of submitting recommendations on policy measures to the advancement and prosperity of Hong Kong.
The situation that we are in at the moment is historically unprecedented given the mix of external and internal pressures that Hong Kong faces. Geopolitical uncertainties combined with domestic issues that have since manifested into social restiveness pose serious threats to Hong Kong’s overall well-being. Despite these, we remain optimistic about and confident in the prospects for Hong Kong in our capacity as a world-class city and key gateway for the Mainland.
The task of ‘righting the ship’ will not be easy as you have already acknowledged and we hope that our suggestion on rethinking the Government’s approach to policymaking would be useful to the process of restoring public confidence and trust. We also hope that you will find our proposals on enhancing Hong Kong as a place to live, work and do business to be positive and constructive.
As always, the Government has our strong support and we look forward to working with you to see Hong Kong through the existing socio-economic difficulties and in ensuring a prosperous SAR for all Hong Kong citizens.
Submission by Hong Kong General Chamber of Commerce on suggested public policy priorities for the 2019-20 Policy Address
(a) The reasons for the policy initiative in question should be spelt out clearly in a well-publicized consultation paper. There should also be a widely-publicized media release inviting comments on the consultation paper. The consultation paper should include an explanation of the perceived benefits of the proposal, whether legislation (as opposed to a less-intrusive measure) is necessary to achieve those benefits (and if so, why), and why the benefits of the proposal exceed its costs and other disadvantages or potential harm to society. In other words, a proper, evidence-based regulatory impact assessment (RIA) should be conducted before any new policy measure is introduced, a mechanism which we have been advocating for the last few years.
(b) In terms of the period of public consultation, the norm should be three months (as is usually the case at present). If there are genuinely urgent factors which necessitate a shorter consultation period, these should be spelt out in the media release inviting comments on the consultation paper, so that all interested members of the public have proper notice of the consultation, and a reasonable opportunity to submit their views in time. An integral and important aspect of RIA is to allow citizens and stakeholders to participate in, and contribute to, policy- making throughout such a process.
Improve Quality of Life
(i) Hong Kong companies registered in BVI, Cayman Islands and Bermuda are affected by the new economic substance requirements. For issuers, failure to comply with the new regulations could result in delisting. At issue is the difficulty in applying for a Certificate of Residence (CoR) from the Inland Revenue Department (IRD) for Hong Kong companies registered in these territories, particularly those which do not have a tax treaty with Hong Kong. The CoR is useful in exempting companies from fulfilling the new requirements, as it helps to establish their status as being tax resident in the SAR. In the interest of certainty, we suggest that consideration be given to (1) extending the validity of CoR beyond jurisdictions with which Hong Kong entered into bilateral treaties to signatories of multilateral agreements such as the Multilateral Competent Authority Agreement and the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, and/or (2) amending the Companies Ordinance to allow the re-domiciliation of foreign-registered companies in Hong Kong.
(iii) There are a number of areas in which the enhanced deduction for qualifying R&D expenses introduced last year could be improved upon, through such means as elaborating on the intended approach by IRD in deeming royalties received by Hong Kong taxpayers for developments made before the introduction of the new legislation as being taxable. The ability to enjoy super-deduction is to some extent curtailed due to the narrow definition of qualifying activities and geographical scope. We suggest that existing provisions should be reviewed, so that these are able to serve their intended purpose of supporting R&D by Hong Kong companies not only within the SAR’s borders, but also through the Greater Bay Area.
(iii) Since 1994, liquor with an alcoholic strength of 30% or above is taxed at 100% based on its declared import value. This has remained the case while most developed economies have since shifted towards a taxation system based on alcoholic content. This has placed Hong Kong at an economic disadvantage and the city is not achieving its full potential as an international tourism and auction centre. According to a Benchmarking Exercise completed in January 2019, a reformed spirits tax could generate as much as HK$1 billion in additional benefits for Hong Kong’s economy in the first year of implementation. We therefore suggest replacing the existing tax on spirits to a formula that calculates excise tax on products with alcoholic strength of 30% or above based on the alcohol content regardless of its import price. This would benefit a wide cross section of the local economy that include such activities as auctions, premium tourism, gastronomy and entertainment, luxury retail, convention and education, and logistics. Such a change would also be timely in helping the retail and tourism sectors weather increasing challenging operating conditions due to the effects of the China-US trade war and local unrests.
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