Liang Hongfu

Hong Kong's tax base must not expand

By Hong Liang (China Daily)
Updated: 2006-07-25 09:04

It's too bad that we have to repeatedly visit this goods and services, or sales, tax issue. Don't you get it? It's a bad idea for Hong Kong, born out of desperation in an economic slump that is pretty much history by now.

The entire concept of "broadening" Hong Kong's tax base was nothing more than a textbook solution to the widening budget deficit, brought about mainly by the collapse of the property market, which dragged the economy through the mud. Academics love it because they don't need to do any original thinking to make a sound theoretical case. Accountants support it because they can see great opportunities for new business in an increasingly complicated tax regime.

But the people of Hong Kong, especially those in the business sector, should reject the idea. We must keep our heads cool and remain confident that a low and simple tax system is best for Hong Kong.

Overeager government officials should listen to protests from the leaders of the tourism and retail sectors, which stand to bear the brunt of the proposed sales tax. They warned that such a tax could seriously undermine efforts to promote tourism, which has become one of the fastest-growing industries, thanks partly, at least, to the huge influx of tourists from the mainland.

As reported in the local media, Travel Industry Council Executive Director Joseph Tung Yao-chung said the tax would turn off tourists because it would require them "to queue for tax rebates at the border or airport for two or three hours."

Making the rebate at the shop is equally impractical, according to industry experts. "Could you imagine hundreds of mainland visitors surrounding a shop waiting for tax rebates? It might cause chaos at shops," Tung was quoted as saying.

Latest government figures showed that more than 5.7 million mainlanders visited Hong Kong in the first five months of this year, up 15 per cent year-on-year.

We, of course, don't need travel industry experts to tell us that the majority of mainland tourists come to Hong Kong mainly to shop. If you make shopping a hassle for them, you stand the risk of losing them to Singapore.

Knowing the flexibility of Hong Kong's business people, I can imagine that if this tax is introduced in Hong Kong, many shops would relocate to Macao to create a new shopping paradise for mainland tourists.

Clara Chong Ming-wah, executive director of the Hong Kong Tourism Board, expressed concern that the complexity of the tax rebates mechanism could turn away mainland tourists. She was quoted as saying by the local media that: "The most important thing is to make it (goods and services tax) simple and easy. It must be convenient for our tourists. We also do not want to see prices of goods going up because of the sales tax, and we also hope the proposed new tax will not bring any inconvenience to our visitors."

Government officials have, at one time or another, indicated they were fully aware of all the potential impact such a tax would have on Hong Kong's tourism and retail sectors. It is obvious that much thought has been given to facilitating the process of tax rebates.

But as Susanna Lau Mei-sze, general manager of Hong Thai Travel Service, said: "It is mainly a psychological impact (on consumption) rather than practical once there are tax rebates for tourists." Ms Lau told the local media that in her experience while overseas, she had not received the exact amount of tax paid, and had heard of people never receiving a rebate despite filling in forms at shops."

The "psychological impact" of a sales tax, or any other new tax, would be potentially devastating for Hong Kong, which has been known around the world for more than 100 years as a "free" port, where the flow of goods, except for a small number of controlled items, in and out of the city is not subject to any form of restriction or tariff. For most Hong Kong people, the only tax they know is income tax. And that's how it should remain.

Email: jamesleung@chinadaily.com.cn