Hong Kong Budget 2017 / 2018

The Financial Secretary, Mr Paul Chan, presented the last budget of the current term government to the Legislative Council on 22 February 2017. As anticipated, the Government once again recorded a much higher surplus than its previous estimate. The revised estimate surplus for 2016-17 is HK$92.8 billion as compared to the original estimate of HK$11.4 billion. This is mainly due to the increase in revenue from land sales and stamp duty.


Mr Chan admitted that some sectors in the society have suggested that since the Government is running a substantial fiscal surplus this year, it should reduce taxes and introduce more recurrent measures to alleviate people’s financial burden. However, he considers that Hong Kong has a narrow tax base and our revenue sources are concentrated. As a small and open economy, Hong Kong is particularly susceptible to global economic fluctuations. While the Government’s revenue may fluctuate with the ups and downs of the economic cycle, its expenditure is far more rigid and public services cannot be trimmed or suspended arbitrarily. As such, being a responsible government, he should remain vigilant.

Despite the above remark, Mr Chan acknowledged that while Hong Kong has all along been maintaining a low, simple and territorial-source-based tax regime, the global competitive environment is fast-changing. Neighboring countries, European countries, the US and Free Trade Zones in the Mainland are using tax concession as a means to compete for investment and promote the development of targeted industries. Hong Kong competitiveness, in particular on our tax policies, has been gradually fading away. In this regard, Mr Chan said that we have to examine the international competitiveness of our tax regime and address the problem of a narrow tax base. Toward this end, he proposed to set up a tax policy unit in the Financial Services and the Treasury Bureau to comprehensively examine these tax issues from a macro perspective. We, Mazars Hong Kong, actually has been advocating a comprehensive review of our tax regime so as to maintain our tax competitiveness. We welcome Mr Chan’s proposal but also suggest that such tax policy unit should consist of tax practitioners so that we can share our views and practical difficulties facing by our clients.

Both Mr Chan and his predecessor Mr John Tsang consider that structural deficit may emerge in the future given our ageing population and concentrated revenue sources. We look forward to the setting up the tax policy unit to revamp our existing tax regime.