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Goods and Services Tax

109.    In recent years, economies in all parts of the world have successively introduced a goods and services tax (GST), sometimes known as a value-added tax, to broaden their tax base and increase tax revenue. Up to now, more than 120 countries have introduced this type of tax. Hong Kong is the only developed economy that does not have one. GST is broad-based and equitable, and is capable of yielding a sizeable and steady revenue. According to a rough estimate, each single percentage point in the rate of GST will yield revenue of about $6 billion a year, assuming that no exemption is granted. Depending on any exemptions, a GST of 5 per cent would generate around $20-30 billion revenue for the Government in a full year. Besides, being less sensitive than direct taxes to the cyclical movement of the economy, GST can enhance the Government's ability to withstand the pressure on public finances brought about by an economic downturn. During the Budget consultation, quite a number of professional bodies, business chambers and academics indicated that they would support the introduction of GST, set at a low level, in order to provide a steady source of income.

110.    I appreciate the community's concerns that the introduction of GST might add to the burden of low-income families. In our study on whether to introduce GST, we will definitely take into full account the possible impact on low-income families. From the experience of other places in implementing GST, we have found that the actual impact of the tax on low-income families will lessen if subsidies are granted to them in parallel with the introduction of the tax. Furthermore, the sizeable and steady revenue generated by the tax would improve the Government's financial health. There might even be some scope for reducing other taxes, such as salaries tax and stamp duty.

111.    Some people have indicated that the introduction of GST might affect the tourism industry. We may draw on the experience of other places, and consider introducing a tax refund scheme for visitors. Under such a scheme, visitors would be allowed to apply for a refund of GST paid for purchases in Hong Kong, thus minimising the possible impact of GST on tourism.

112.    As regards the impact of GST on the economy, experience shows that in places that have introduced this tax in recent years, its effects on prices are limited and short-term. Over the longer term, these effects will generally disappear. A substantial increase in profits tax and salaries tax simply for the sake of financing the deficit could lead to a drain on capital and talent instead, thereby undermining our competitiveness.

113.    The Government has set up an internal committee to conduct a detailed and comprehensive study on the implementation of a GST in Hong Kong. It will draw on the practical experience of other places and come up with a proposed GST framework suitable for Hong Kong and an implementation timetable as a basis for discussion. The committee will submit a report to me at the end of this year upon completion of the study. After that, I will announce what will be done next. We are likely to need at least three years to implement GST. I hope that various sectors of the community will hold a rational debate on this important subject and seek to reach consensus.

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