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Broadening the Tax Base

Need to Secure Steady Revenues

106.    Hong Kong's tax base is narrow. In the long run, we need to broaden it to secure a steady source of revenue.

107.    The following presents some data about Hong Kong's tax system in comparison with member states of the Organisation for Economic Co-operation and Development (OECD):
  • In Hong Kong, non-tax revenue accounts for about 40 per cent of total revenue, whereas the figure for OECD economies is around 14 per cent. This shows that Hong Kong has a far heavier reliance than those economies on non-tax revenue, such as land revenue and investment income.
  • Our corporate profits tax accounts for 34 per cent of total tax revenue, significantly higher than the 9 per cent for OECD economies.
  • We have no taxes on general consumption. In OECD economies, revenue from such taxes alone accounts, on average, for 18 per cent of the local tax revenue. This excludes the revenue contributed by individual taxes on specific goods and services.

108.    Hong Kong is more reliant than the OECD economies on profits tax and real property-related taxes or non-tax revenue. As revenue from these sources is sensitive to economic fluctuations and our types of taxes are limited, we are less able to tackle fiscal deficits during economic downturns than other economies with more broadly-based taxes. In most circumstances, we can only raise direct taxes, such as profits tax and salaries tax, to increase our revenue significantly. This may not be the best course of action in an economic downturn. Furthermore, other places, in seeking to attract investment from international enterprises in a globalised economy, are inclined to lower their direct taxes progressively and make up for the reduction in revenue by increasing consumption taxes. If we adopt the diametrically-opposed policy of financing our deficit by increasing direct taxes, our competitiveness will definitely be undermined.

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2003 | Important notices
Last revision date : 10 March, 2004