Hong Kong tax cuts imminent

Hong Kong has made more than its fair share of missteps in the global competitiveness stakes lately, but the government is getting one thing right: tax cuts. Chief Executive Donald Tsang delivers the first policy speech of his new term on Wednesday and it promises to make instructive reading for lawmakers elsewhere in the world who want to make their economies competitive, says the Wall Street Journal.

Tsang's move was mooted earlier this year, when he promised to cut taxes on both salaries and corporate profits to 15 per cent during his next term.

The salaries tax currently stands at 16 per cent and the profits tax at 17.5 per cent.

On Friday, the South China Morning Post reported he'll start the ball rolling this week, sooner in his term rather than later.

Singapore, Hong Kong's big competitor in the region, has been steadily cutting corporate taxes over the past few years. Its rate now stands at 18 per cent. Hong Kong is firing a shot across its rival's bow, and so far it seems to be working, says the Journal. The mere mention of an impending tax cut helped boost Hong Kong's market 3.18 per cent Friday.

Big spenders elsewhere in the world might argue that Hong Kong's big budget surplus ($7.1 billion last year) means it can "afford" a tax cut, while America's deficit means the United States can't. But the boost the Hong Kong market got from the mere report of an impending tax cut is one sign that America – and other world financial centres – can't afford not to cut levies. In the race to attract new business, New York and London are competing against a territory that thinks a 17.5 per cent corporate tax is too high, says the Journal.

Source: Editorial, Back to Basics, Wall Street Journal, October 8, 2007.

For text: http://online.wsj.com/article/SB119179204964651436.html

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 16 October 2007