The 2012-13 Budget
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The 2012-13 Budget  
Budget Speech
Supporting Enterprises

34.       First of all, lending support to enterprises. I am deeply concerned about the possible hardship small and medium enterprises (SMEs) may suffer in times of economic downturn. Making up the vast majority of the enterprises in Hong Kong, SMEs employ over 1.2 million staff, representing half of the total number of employees in the private sector. We must do our utmost to help SMEs get through difficult times in order to minimise unemployment. I shall now propose a series of supportive measures for them.

35.       To address the financing difficulties faced by SMEs, the Government introduced the Special Loan Guarantee Scheme in 2008. With the recovery of the economy, the Scheme ceased to accept applications on 1 January 2011. It was replaced by a market-oriented sustainable SME Financing Guarantee Scheme launched by the Hong Kong Mortgage Corporation Limited (HKMC). The new Scheme offers financing guarantee services catered for SMEs and helps reduce banks’ lending risks, thereby contributing to maintaining the stability of our banking system.

36.       Given the fluctuations in the external economic environment in the coming year, SMEs may have to face financing difficulties once again as a result of the credit crunch. After taking into account suggestions by SMEs and the banking sector, we propose to substantially enhance the existing SME Financing Guarantee Scheme by introducing a number of concessionary measures.

37.       Under the SME Financing Guarantee Scheme, the maximum loan guarantee ratio is 70 per cent. The concessionary measures will include a new loan guarantee product with a higher ratio of 80 per cent for which the Government will provide a total guarantee commitment of $100 billion. While the annual guarantee fee for a loan with a guarantee ratio of 70 per cent currently stands at 32 to 35 per cent of the loan facility’s interest rate, that for a loan with a guarantee ratio of 80 per cent under the new concessionary measures will be lowered to 10 to 12 per cent. Take a $1 million loan at an interest rate of five per cent per annum as an example. The annual guarantee fee for a loan with a guarantee ratio of 70 per cent is $16,000 under the current Scheme. The annual guarantee fee for a loan with a guarantee ratio of 80 per cent under the concessionary measures will only be $5,000, 70 per cent less when compared to the current rate. The concessionary scheme will be open for application for nine months. Taking into account the anticipated default rate, the estimated government expenditure will be about $11 billion.

38.       The increase in loan guarantee ratio under the SME Financing Guarantee Scheme will enhance lending institutions’ confidence in offering loans to SMEs to meet their financing needs. The significant reduction in guarantee fee will also reduce the burden on SMEs. We consider that a limited guarantee fee will ensure appropriate risk sharing among lending institutions, enterprises and Government, and hence the proper use of public money. To tide enterprises over difficult times, the HKMC will launch the concessionary measures as soon as possible, and discuss with lending institutions and enterprises ways to simplify the Scheme’s existing procedures.

39.       In times of economic downturn, exporters will face a shrinking overseas market as well as increasing risks of default in payment by buyers. In December 2011, the Hong Kong Export Credit Insurance Corporation (ECIC), with the full support of the Government, introduced three enhanced measures, namely (1) waiving its annual policy fee for one year; (2) providing exporters with free buyer credit assessment service; and (3) expediting the assessment of small credit limit applications.

40.       To further assist SMEs, the ECIC will introduce new terms in their insurance policy, which will include special concessions for SMEs, on 6 February. For example, SME policyholders will be allowed to insure their exports only for places and buyers of their choice under specified circumstances, and will be offered various premium discounts. Moreover, the ECIC will extend the sales-by policy launched in March last year to contracts between Hong Kong exporters’ overseas or Mainland subsidiaries of which the Hong Kong policyholders have control, and their buyers. I believe that these new initiatives will further help SMEs maintain their competitiveness, tap into emerging markets and ease their financial pressure.

41.       In the face of the worsening external economic environment, we need to help our enterprises by reducing their operating costs and enhancing our competitiveness so as to protect employment. To this end, I propose four measures as follows:


Waiving the business registration fees for 2012-13 to benefit all business operators. This proposal will cost the Government $1.9 billion;


Reducing profits tax for 2011-12 by 75 per cent, subject to a ceiling of $12,000. The reduction will be reflected in the taxpayers’ final tax payable for 2011-12. The proposal will benefit all taxpayers who are liable to profits tax, the number of which is near 120 000. This proposal will cost the Government $1.12 billion;


Halving the charges for import and export declarations. We estimate that each enterprise engaging in import and export businesses will save $9,000 a year on average. This will cost the Government $750 million a year; and


Abolishing capital duty levied on local companies. This is to encourage investors to set up companies in Hong Kong to raise capital and expand their business, thereby enhancing Hong Kong’s competitiveness as a corporate domicile. This proposal will cost the Government $90 million a year.


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