Face the Challenge
177. The significant rise in government expenditure over the years was for enhancing services or increasing investment in various areas of the community, which were essential to catching up with the needs of the public. In the coming years, government expenditure will enter a consolidation period. We will focus on the optimal use of resources to implement the committed initiatives in an orderly and effective manner so that the public will see progressive improvements in public services and social infrastructure. As for future increase in spending, we should be more mindful of the Government's long-term affordability. It should also be commensurate with the increase in revenue.
178. We need to maintain the growth and vibrancy of our economy and identify new areas of economic growth, with a view to increasing our revenue, promoting social development, coping with the challenges arising from an ageing population, and providing more quality employment opportunities. Besides, we may need to consider seeking new revenue sources or revising tax rates. The one-off relief measures may also have to be progressively reduced.
179. Hong Kong is renowned for its simple and low tax regime which is based on the principle of territorial source. In recent years, we rolled out a number of tax concession measures to promote investment in and the development of specific sectors. However, new developments in the international tax arena will affect the competitiveness of Hong Kong's tax regime.
180. In response to the use of tax policy in the international community as a means of competition, the Organisation for Economic Co-operation and Development (OECD) is actively exploring the proposal of setting rules for imposing a global minimum tax rate. Under this proposal, if the tax paid by a multinational corporation in Hong Kong is lower than the new global minimum tax rate, its parent company will be subject to additional taxes or defensive measures imposed by the jurisdictions where they are located. As an international financial and business centre, Hong Kong will inevitably be affected.
181. The imposition of a global minimum tax rate may undermine the attractiveness of Hong Kong's low tax policy to multinational corporations, thus posing challenges to our territorial-source-based tax regime. The proposal will also bring additional tax burden and compliance costs to multinational corporations, and affect their incentives for investing and operating in Hong Kong.
182. The Government will continue to keep a close watch on the developments of the OECD's work, make assessments and devise corresponding measures. I will invite scholars, experts and members of the business community who are experienced in the fields of international taxation and economic development to tender advice on the matter. This is to ensure that Hong Kong's tax regime is not only in line with new developments in the international tax scene, but also helps us maintain our premier business environment and competitiveness.
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