President, regarding today’s motion on reducing taxes across the board to return wealth to the people, I very much agree to the proposal of tax reduction. But in my opinion, apart from returning wealth to the people, there is a more important purpose of tax reduction, that is, to stimulate the economy. One of the important proposals I submitted to the Government in relation to the policy address earlier is to stimulate the economy by reducing taxes.
In fact, I have always supported the notion of returning wealth to the people by tax reduction or tax concessions. However, to maintain a low tax environment in the long term, the Government has to expand revenue sources in order to compensate for the forgone revenues and pay the enormous public expenses. Otherwise, the implementation of tax reduction in this year is totally meaningless if taxes have to be raised a few years later. Nor is this a genuine measure of returning wealth to the people.
Today, some Members have proposed to wield the axe at the enterprises. This is like killing the goose that lays golden eggs. Undoubtedly, government revenue will increase in the short term, but Hong Kong will face a gradual capital drain and brain drain. As we all know, our competitors have cast covetous eyes on our capitals and talents. To tax our enterprises is tantamount to delivering the goose that lays golden eggs in Hong Kong to our competitors. In my opinion, it is better to take away the goose that lays golden eggs from other people. The most straightforward way to enhance Hong Kong’s competitiveness and attract international investors to Hong Kong is to lower the profits tax rate.
To stimulate the economy by reducing taxes is a means commonly adopted in public finances. This is precisely an appropriate measure to restore the competitive edge of Hong Kong. Recently, this Council has held a number of discussions on Hong Kong’s deteriorating competitiveness. Today, I wish to point out that it is the first and foremost important task for Hong Kong to enhance its competitiveness. If Hong Kong feels complacent, its status as an international financial centre will soon be taken away like its status as the world’s first container port in the past. So, Hong Kong needs to enhance its competitiveness as soon as possible. Meanwhile, with the further deepening of economic reforms in the Mainland, Hong Kong will face increasingly fierce competition. A free trade area (FTA) has been set up in Shanghai. According to a media report in the Mainland, the Central Authorities will endorse the setting up of another FTA in Guangdong Province in the near future. Therefore, we must strive to engage in further co-operation with the Mainland and expand the scale of business in Hong Kong. Certainly, this requires collaboration in various aspects, including optimizing the local business environment.
In addition, there is a need to reduce taxes, which should be supported by financial and economic strength. Hong Kong has accumulated more than $700 billion in fiscal reserves. Coupled with a huge surplus in the Exchange Fund, the Government is hoarding more than $1,000 billion of assets, which is sufficient for the implementation of a tax reduction. As it will take a period of time before a tax reduction meant for stimulating the economy can bear fruit, a decrease in tax revenues is inevitable in the short term. So, a substantial amount of fiscal reserves will enable Hong Kong to implement a tax reduction.
Many people opine that a reduction in profits tax will only benefit big corporations. People with such a view are short-sighted for they fail to see the enormous long-term benefits that may be brought to the community. I can cite an example to illustrate this. Due to its rapid economic development in recent years, Singapore has surpassed Hong Kong in a lot of areas. Their success depends on collaboration in a wide range of aspects. But the Singaporean Government and many analysts believe that tax reduction can be said to be a very important factor in successfully stimulating the economy. In 1997, the corporate tax rate in Singapore was as high as 26%. However, in view of the changing economic environment, its corporate tax rate has been reduced in five phases to only 17% now which is close to the level of 16.5% in Hong Kong. Despite the substantial tax reduction, its revenue has been rising in an amazing rate. The GDP of Singapore over the same period has rapidly risen from S$146 billion to more than S$300 billion recently, representing an increase of more than 100%. There are certainly many factors contributing to its success, and tax reduction is just one of them. I believe if Hong Kong is willing to cut its profits tax rate, coupled with collaboration in other aspects, the gains will outweigh the losses.
In fact, reducing profits tax is the world’s trend. Many Asian and even Western countries have reduced their corporate tax rates in recent years. For instance, the corporate tax rate in the United Kingdom, which was as high as 30% in 2008, was reduced to 23% this year. Like Singapore, the corporate tax rate in Taiwan has been reduced to 17% in a bid to catch up with our competitive advantage in low tax rates. In fact, we should have examined the feasibility of reducing taxes as a corresponding measure of maintaining Hong Kong’s competitive edge. But unfortunately, we have not done so. We should be very clear that in the past many international companies chose to make investments in Hong Kong because of Hong Kong’s advantage in low tax rates. There is really a serious doubt as to whether international investors will stay in Hong Kong in the future if such an important advantage gradually disappears.
Meanwhile, I have to mention that owing to the high rents in Hong Kong in recent years, investors have to pay exorbitant rents in disguise. Coupled with the fact that there are insufficient international school places in Hong Kong, our advantages have already been eroded. A tax reduction can relieve the tax burden on enterprises, thus restoring some of our advantages.
Meanwhile, I have to mention that owing to the high rents in Hong Kong in recent years, investors have to pay exorbitant rents in disguise. Coupled with the fact that there are insufficient international school places in Hong Kong, our advantages have already been eroded. A tax reduction can relieve the tax burden on enterprises, thus restoring some of our advantages.
The Hong Kong Government is committed to promoting Hong Kong as a captive insurance and reinsurance centre. But relevant tax incentives have actually lagged behind that of Singapore. I hope the Government will conduct a review and spare no effort in enhancing Hong Kong’s competitiveness.
I understand that whenever it comes to tax cuts, especially when profits tax reduction is proposed, many people will have worries. But we can follow the example of Singapore and adopt the approach of “groping one’s way across the river” by making periodical adjustments to the policy in response to economic changes. It may even be launched as a three-year pilot scheme subject to review as appropriate. The policy should be subject to adjustment or even be scrapped if it cannot play a role in stimulating the economy or when only enterprises are benefited.
Today, I have spent most of the time on explaining why Hong Kong has to reduce profits tax. But as I said earlier, I also support reducing salaries tax. However, as society and a majority of Members in this Council support a reduction of salaries tax, I would rather spend a little more time on discussing the profits tax reduction in the hope that the Government and the community will understand that a lower profits tax rate will play a very important role in upgrading the competitiveness of Hong Kong.
I so submit.