Special Feature
Strengthening Hong Kong Amid Uncertainty
Strengthening Hong Kong Amid Uncertainty

Below is a summary of HKGCC's proposals on the Budget. Members can read the full submission on the Chamber's website.


Hong Kong faces greater uncertainty due to factors including a tightening credit market, the unfolding trade war, rising protectionism, weaker emerging markets and looming geopolitical issues in the European Union. The Mainland Chinese economy is also facing international headwinds, as well as domestic challenges that could stall its growth trajectory. 

As an economy that is heavily dependent on trade, Hong Kong would suffer in a global slowdown. It is imperative that we are prepared for the challenges that threaten to cut the proverbial legs from under a global economy that has not quite recovered from the Global Financial Crisis a decade ago. 

 We therefore must work harder to improve operating conditions in Hong Kong. The measures put forward by the Government to tackle the key bottlenecks of land and labour are very much welcome. We look forward, however, to further measures on the review of legislation to improve Hong Kong’s competitiveness.

Ensuring regulations are fit for purpose
We continue to stress the need for a proper regulatory impact assessment (RIA) scheme as part of the policymaking process. The benefits of an RIA are considerable, and can have positive knock-on effects that extend beyond the business sector. 

By adopting a systematic and evidence-based approach to regulating, the Government would also be better placed to explain its rationale and objectives to the public.  

A proper RIA system would not necessarily require major institutional changes. Rather, refinements to the Government’s “Be The Smart Regulator” Programme would suffice in introducing a full-fledged RIA system. 

Enhancing Hong Kong’s role in the GBA
Hong Kong’s ties with the Mainland have become increasingly important as our nation assumes greater prominence on the international stage. The Greater Bay Area (GBA) initiative is the logical next step for putting in place a regional cooperation framework that will contribute to the Mainland’s economic development and further opening-up.   

Hong Kong is expected to enjoy support from the Central Government in enhancing its comparative advantages in the areas of international finance, trade and transport. The recent opening of the Hong Kong-Zhuhai-Macao Bridge and the Express Rail Link will improve connectivity within this enlarged metropolitan region. 

For the GBA to truly work, there should be conscious efforts to ensure that cross-boundary exchanges – including the flow of people – can be carried out seamlessly. We suggest replicating the programme implemented in the Qianhai and Hengqin Economic Zones, where Hong Kong residents enjoy a rebate that effectively places them in a lower tax bracket. 

Fiscal initiatives

Strengthen the Tax Policy Unit
The establishment of the Tax Policy Unit (TPU) in April 2017 showed the Administration’s commitment to sustaining Hong Kong’s advantages in the area of taxation. But we believe that the TPU could do more, such as:

  • Encouraging the establishment of regional headquarters (RHQs) 
    Hong Kong’s advantage lies in its well-developed financial infrastructure, simple and competitive tax regime, common law system, and well-educated labour force. Despite this, Hong Kong faces competition from other jurisdictions – including Singapore, Shanghai and Sanya – which have introduced tax concessions and other incentives to attract RHQs. Hong Kong should review the incentives currently on offer to encourage the establishment of RHQs.
  • Enhance tax concessions on R&D spending
     The Government’s decision to introduce super-tax deduction for R&D expenditure is an important step towards its objective of transforming Hong Kong into a centre for innovation and technology. We suggest extending qualification for this deduction to include Hong Kong-based companies with wholly-owned subsidiaries that are engaged in R&D in the GBA.  
     On a related note, there should be a review of the various government funding schemes to ascertain their effectiveness. We understand that the Government is reviewing the application process and we look forward to proposals to ensure companies engaging in R&D are able to access the available funds.
  • Promote Hong Kong as a base for global trading    
    Hong Kong also engages in “offshore trade,” where the goods involved do not enter or leave Hong Kong. However, because contractual agreements for such activities are effected in Hong Kong, profits stemming from offshore trade are regarded as being derived here and are therefore taxable. 
    In 2001, Singapore introduced the Global Trader Programme (GTP) which offers concessionary tax rates on qualifying trading income (including offshore trading). We suggest that consideration be given to introducing a concessionary tax rate for established companies to maintain our appeal as an international trading centre. 
  • Review the Spirits Tax
    Hong Kong operators face one of the heaviest tax burdens on spirits relative to the rest of the region. 
    In 2008, Hong Kong removed the excise duty on wine. Since then the SAR has become Asia’s leading wine trading and distribution centre, and a hub for regional events. We suggest that a review be carried out for the existing tax on spirits to bring us in line with other economies including the E.U., the U.S., and Singapore. 

Preparing for uncertainty and sustaining competitiveness
The general economic prognosis appears to be fraught with risks and uncertainty. As the trend for inward-looking policies and protectionism grows, it is more important than ever for Hong Kong to gird itself against external events. The substantial fiscal reserves and relationship with Mainland China that we enjoy will serve as potent buffers against any adverse outcomes. 

We should also act to sustain our standing as one of the most competitive and business-friendly places in the world. We urge the Government to give serious consideration to our recommendations.