Policy Statement & Submission

21 January 2025

The Honourable Paul Chan Mo-po, GBM, GBS, MH, JP
Financial Secretary
Hong Kong Special Administrative Region
25/F, Central Government Offices
2 Tim Mei Avenue, Tamar
Hong Kong

Dear Financial Secretary,

I am pleased to submit for your consideration the Hong Kong General Chamber of Commerce’s proposals for the Government’s forthcoming Budget. 

The growing uncertainty in the global landscape casts a shwdow over Hong Kong's economy. While we remain confident in our long-term prospects, it is crucial fro the Gorvenment to devise a comprehensive strategy to achieve fiscal balance. We believe that by effectively utilising our resources, the Government can drive economic growth that benefits all.

Amid the structural changes in the economy, the business community stands ready to collaborate with the Government to navigate towrads a promising furture. The attached submission outlines our recommendations for strategies that can help position Hong Kong prominently on the international stage.

We hope you will find our suggestions useful in formulating the forthcoming Budget.

Yours sincerely,

Agnes Chan
Chairman

Encl.

HKGCC Submission to the 2024-25 Budget
Executive Summary

Hong Kong has experienced three consecutive years of deficits, leading to a gradual depletion of reserves. The need to reduce wastage and explore new revenue streams has become even more compelling. The Chamber urges the Government to raise revenue and reduce expenditure through a multipronged approach. It may take a few years before the Government returns to a surplus. Prior to that, identifying crucial areas for expenditure and investment is paramount within these financial constraints.

1    Supporting People and Businesses

• Relieve People’s Burden
  
  To alleviate the financial strain on middle-class and other taxpayers, the Government should consider providing a tax reduction of 100%, subject to a ceiling of HK$3,000 on salaries tax, tax under personal assessment and profits tax for 2025-26. Additionally, the Chamber suggests a 50% reduction on the ad valorem stamp duty for property valued at HK$5 million or below for first-time homebuyers, to support the younger generation and stimulate the property market.
   
• Support SMEs
  
  Many SMEs face challenges in adjusting to the structural shifts in the economy. The Government should consider providing long-term fixed-rate mortgage loans to SMEs to help them mitigate risks associated with interest rate fluctuations.
   
• Issue Bonds
  
  Hong Kong maintains a relatively low government debt-to-GDP ratio, currently at around 10%, compared to other advanced economies. We support for an increase in the issuance of government-backed bonds, provided that the fund raised from such bonds are applied to long-term investments rather than finance recurrent expenditure.
   
• Increase Revenue
  
  To address the imminent fiscal challenges, we reiterate our call for the introduction of taxes on digital activities performed by non-Hong Kong resident digital service providers. Referencing to other jurisdictions, the Chamber proposes initially implementing a 3% to 5% tax on a limited scope of digital activities. This measure would not only create a fairer tax environment for local digital suppliers but also enhance Hong Kong’s economic resilience.
   
• Contain the Growth of Expenditure
  
  Alongside raising revenue, it is imperative for the Government to contain expenditure in order to achieve a fiscal balance. The Government should consider reviewing civil servant establishments and salaries to confine recurrent expenditure. In addition, adjusting the Public Transport Fare Concession Scheme (HK$2 Scheme) by introducing an annual cap of 750 trips (equivalent to covering one round trip per day for 365 days a year) per elderly person aged between 60 and 64 is suggested. Individuals aged 65 and above remain unchanged.
   
• Headquarters Economy
  
  It is crucial to attract regional headquarters (RHQs) to establish presence in Hong Kong to draw in additional capital, new technologies and talents. The Government should consider granting a 3-year tax holiday to RHQs that were previously based in Hong Kong. Additionally, offering a preferential tax rate on qualifying profits (i.e., 8.25%) for RHQs is proposed.
   
• Human Capital
  
  It is important for Hong Kong to maintain a sustainable supply of market-relevant human capital. The Government should consider raising the subsidy ceiling of the Continuing Education Fund to HK$30,000 per person. We also suggest providing a 120% tax deduction to employers for investing in upskilling their workforce’s digital proficiencies. Expanding the scope of the Labour Importation Schemes for the Construction Sector is also proposed to alleviate the persistent labour shortage in the construction and engineering sectors.

2    Strengthening Hong Kong’s Competitive Edge

• Financial Markets
  
  In light of the strains on government resources amidst the prevailing fiscal conditions, a broader adoption of public-private partnerships, involving both financial and non-financial participation from the private sector, could significantly enhance the efficiency in the delivery of public goods. Additionally, enhancements to the family office regime are put forth.
   
• Bond Market Development
  
  To further promote the development of the local bond market, the Government should consider offering subsidies for listing costs to high-quality international issuers list bonds on the Hong Kong Stock Exchange. In addition, we suggest that the Government establishing a blockchain-based platform for digital bond issuance.
   
• RMB Internationalisation
  
  To enhance offshore RMB liquidity and enrich the RMB ecosystem in Hong Kong, we urge the Government to continue widening and deepening the funding sources for offshore RMB (CNH). Through the enhancement of diverse connect schemes, Hong Kong can solidify its position as the largest and most important global offshore RMB business hub.
   
• Greater Bay Area
  
  To further promote Hong Kong as the preferred gateway for investments into and out of the Mainland, the Chamber suggests that the Government engage with Mainland authorities on eliminating withholding tax on dividends paid by Mainland businesses to Hong Kong investors. In addition, to enhance tax transparency and assurance, the establishment of a Quick Repatriation Channel is proposed.
   
• Innovation and Technology
  
  To take forward the low-altitude development of Hong Kong to the next level, the Chamber suggests that the Government providing tax incentives for activities associated with low-altitude economic development. We also reiterate our call to extend the super-deduction to include R&D activities conducted in the GBA.
   
• Real Estate Sector
  
  The Government should prioritise strategic infrastructure investments, even amidst budget deficits, particularly when these projects exhibit robust returns. We support that the Government mobilising land resources for the development of New Development Areas, as well as data centres. Additionally, enhancements to the land sale programme are proposed.
   
• Raising Trade Competitiveness
  
  It is crucial that the Government continue in strengthening the trade mechanism. To boost Hong Kong’s maritime strength, the Government should consider providing a one-off full tax deduction on ship acquisition expenses, taking inspiration from the successful enhancement of the aircraft leasing incentive. Furthermore, proposals for increasing the adoption of sustainable aviation fuel are also put forth.

3    Preparing for an Ageing Society

• Primary Healthcare
  
  With an aging population, recurrent expenditure is expected to rise as health and social needs of this demographic increases. To relieve the growing burden on the public healthcare system, there is pressing need to accelerate the move from secondary and tertiary healthcare towards more primary healthcare services such as screening and testing. This can be achieved by actively pursuing a collaborative relationship with the private sector for delivery of primary healthcare programmes.
   
• Retirement Savings
  
  The Chamber believes there is still room for improving the MPF system to better meet the basic retirement protection needs of the working population. The Government should consider introducing an index mechanism that is pegged to the cost of living. Also, allowing partial withdrawal of MPF contributions for major life events can encourage employees to increase their contributions. Additionally, proposals to incentivise voluntary retirement savings are also put forth.