The forthcoming year will be a particularly challenging one, as Hong Kong has been beset by major challenges from within and without.
The dragged-out Sino-U.S. Trade War and ongoing social upheaval have given rise to a “perfect storm” that will require a mix of courage, leadership, pragmatism and empathy to help steer Hong Kong through the political and economic troubles that we now face.
Transparent and Inclusive Policy-making Process
We welcome the announcement made by the Chief Executive on 9 July that there will be a major and substantive review of the manner in which the Government consults and collects feedback from the public. Transparency and proper public consultation are key to obtaining the public’s support for proposed policy initiatives.
The fact that, in the case of the Extradition Bill, these fell well short of the usual standard which Hong Kong citizens have rightfully come to expect, was in our view a major factor which triggered the current public discontent. Other than the Extradition Bill, there are also notable examples of well-meaning but potentially disruptive legislative proposals, which include the Vacancy Tax; statutory cooling-off period for beauty and fitness services consumer contracts; raising penalties under the Occupational Safety and Health Legislation; and the Smoking (Public Health) Ordinance.
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. 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.
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. An integral and important aspect of RIA is to allow citizens and stakeholders to participate in policy-making.
Improve Quality of Life
The recommendations given in the consultation report issued by the Task Force on Land Supply earlier this year should be implemented as a matter of priority, to provide more affordable homes. We support reclamation as an effective means of creating land supply, but given the amount of time associated with the process, a multi-pronged strategy as advocated by the Task Force should be adopted to provide new homes as soon as practicable.
We continue to advocate the need for the Government to incorporate decisive and effective policies to create a cleaner and healthier environment in the interest of enhancing Hong Kong’s overall competitiveness and, on a more global scale, contribute to the fight against climate change.
Consideration should also be given to reducing our carbon footprint, which is an important challenge facing the whole world. Hong Kong should play its part, as the Council for Sustainable Development has advocated in its public engagement exercise.
We support the Government’s initiative of levying a fee to reduce municipal solid waste and encourage recycling. The Government should also set ambitious but realistic environmental targets (in such areas as decarbonization, better air quality and reduction in solid waste) while allowing sufficient time for the community and businesses to adjust and plan ahead.
Support the Local Economy
More interim relief measures should be implemented to help individuals and businesses, especially SMEs, weather difficulties caused by falling confidence and a challenging operating environment.
We would like to highlight one particular aspect of government funding support that would benefit from a major review. This concerns the considerable difficulties associated with the application process.
To address this, we suggest that government recast its funding programmes as matching funds, and defer screening responsibilities to its partners in the private sector.
Over the longer term, Hong Kong should also initiate more discussions on free trade agreements or investment agreements with other markets to offset the negative impacts of growing trade protectionism.
Capitalise on the Greater Bay Area and Belt & Road Initiatives
These two national initiatives continue to offer considerable market and employment opportunities to Hong Kong in its capacity as an international financial and services centre under the framework of “One Country, Two Systems.” We should continue to leverage on our intrinsic comparative advantages to capture opportunities arising from these policy initiatives through better integration with the other cities in the GBA, and by supporting the Mainland’s outreach programmes to markets along the Belt & Road.
Regarding the GBA, there are a number of areas in which Hong Kong could assume an important role. These include developing the SAR into a data centre hub, strengthening our standing as a leading international financial centre, capitalizing on our capabilities as a major aviation, maritime shipping and logistics hub, and providing a test-bed for Smart City initiatives that can be replicated across the region.
The Government should ensure that businesses and the public are fully aware of the benefits of these initiatives and how they can participate.
The Government should play a greater role in helping more Mainland enterprises to use Hong Kong as a platform, or partner with Hong Kong enterprises, to develop global, Belt and Road, and ASEAN businesses.
In the area of aviation, focus should be given to allocating more airspace for civil aviation use, single management of airspace across the GBA and introducing more direct flights to increase passenger and cargo flows. The Government should review air service agreements in the interest of consolidating Hong Kong’s role as a super-connector for Belt and Road countries.
The Government should also take the lead in promoting the harmonisation and unification of the digitisation of trade transaction requirements, through the implementation of information technology platforms.
We should continue to be mindful of the need to preserve and nurture Hong Kong’s distinct strengths and unique capabilities. The Government should give greater prominence to its commitment to upholding “One Country, Two Systems” as a way to promote international and local confidence in Hong Kong.
Enhance Tax Competitiveness
There are number of issues that the Tax Policy Unit (TPU) should address as a matter of priority.
• New Economic Substance Requirements in Low-Tax Territories
Hong Kong companies registered in BVI, the Cayman Islands and Bermuda are affected by the new economic substance requirements 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. 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, and/or (2) amending the Companies Ordinance to allow the re-domiciliation of foreign-registered companies in Hong Kong.
• Super Deduction for R&D Expenses
The ability to enjoy super-deduction of qualifying R&D expenses is to some extent curtailed due to the narrow definition of qualifying activities and geographical scope. We suggest that existing provisions should be reviewed to support R&D by Hong Kong companies not only within the SAR’s borders, but also throughout the Greater Bay Area.
• Review the Tax on Spirits
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. 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 based on the alcohol content, regardless of its import price.
This would benefit a wide cross-section of the local economy including auctions, premium tourism, gastronomy and entertainment, luxury retail, conventions, 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-U.S. trade war and local unrest.