On February 24 2021, financial secretary Paul Chan Mo-po announced the 2021-22 Hong Kong SAR Budget outlining the government’s plan for the economy and proposals for taxation developments.
Hong Kong SAR has reported an unprecedented budget deficit of HK$257.6 billion (approximately US$33.2 billion) for the 2020-21 fiscal year, the largest deficit in 20 years. This is primarily due to the one-off pandemic relief measures granted in the past year.
However, even with this deficit, Hong Kong SAR fiscal reserves remains strong at an estimated HK$902.7 billion as at March 31 2021. This clearly demonstrates the underlying strength of the Hong Kong SAR government’s books and economy in general.
While the one-off support measures are reduced from last year, the government’s budget (the Budget) will continue to provide much needed assistance to those affected by the ongoing COVID-19 pandemic. It is pleasing to see that the government has adopted KPMG’s proposed measure of issuing electronic consumption vouchers to Hong Kong SAR permanent residents. This will be an effective and targeted measure to support business areas that have been most affected by the pandemic, and at the same time, promote Hong Kong SAR as a smart city.
No taxes were introduced in this year’s Budget, the government proposed increasing the stamp duty on stock transfers. Given the city’s robust capital markets and anticipated increased IPO activity in the coming months, this is expected to raise additional revenue of HK$12 billion.
However, it is important for Hong Kong SAR’s capital markets to stay competitive with its global peers, many of which are trending towards reducing or removing such duties. The impact of these measures should be kept under review given the ongoing challenges and uncertainties in the global economy. The financial secretary also announced that this is not the time to introduce taxes. The introduction of future taxes should always be done with careful review considering the long-term revenue needs and with as much consensus as possible with the community.
The continued focus on strengthening Hong Kong SAR’s position as an international financial centre and a wealth and asset management hub is also welcomed, especially measures to support green finance and the development of relevant tax measures to support the growth of family offices in Hong Kong SAR.
The Budget also proposed various investments supporting the development of technology and innovation across multiple sectors in order to adjust to post-pandemic realities. As the pandemic continues to reshape Hong Kong SAR’s economy, the government should consider extending more support to employees of pandemic-affected industries for re-training and skills development.
In summary, this year’s Budget substantially follows past years’ mixed bag of measures and sweeteners designed to address a wide range of expectations from the general public. It is hoped that the government will release the implementation details quickly to help Hong Kong SAR move further along the road to recovery.
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