KPMG China recommends measures to enhance Hong Kong's competitiveness by attracting talent and foreign investmentHONG KONG SAR - Media OutReach - 16 February 2023 - KPMG China estimates Hong Kong's deficit for the fiscal year would be doubled the original deficit estimate, however, as the borders reopen and anti-epidemic measures are relaxed, the situation would turn around. Despite the third deficit in four years, Hong Kong's fiscal reserves remain healthy and can be used to assist local people and enterprises, while supporting ongoing targeted measures to maintain Hong Kong's competitiveness in medium to long term.
KPMG China forecasts the Hong Kong SAR Government will record a HKD 120.9 billion deficit for the fiscal year 2022/23, compared to the Government's original estimate of a HKD 56.3 billion deficit, driven by less than expected land related revenue and stamp duty revenue. KPMG China estimates the city's fiscal reserve to stand at HKD 836.2 billion by the end of March 2023.
John Timpany, Partner, Head of Tax in Hong Kong, KPMG China, says: "The opening of the borders and the relaxation of anti-epidemic measures provide an opportunity for an economic turnaround. Short-term fiscal deficit due to relief measures to support citizens and businesses is acceptable. KPMG China believes that the Government should make the timely and right use of fiscal reserves to stimulate the economy, prepare for the turnaround, and maintain Hong Kong's competitiveness."
KPMG China suggests immediate measures such as the distribution of consumption vouchers worth HKD 5,000 to Hong Kong permanent residents and new arrivals, with a portion of vouchers designated to certain targeted sectors such as catering and entertainment. KPMG China also proposes that Hong Kong permanent residents aged 70 or above receive HKD 5,000 cash through the Old Age Allowance. With the launch of the global promotional campaign "Hello Hong Kong", KPMG China recommends that the Government provide monthly work allowance of HK$3,000 to newly employed tourism workers during 2023/24 over a three-month period, at the same time extend the Tourism Industry Additional Support Scheme by providing each eligible licensed travel agent with a one-off cash subsidy.
In the short-to-medium term, KPMG China recommends the Government introduce new allowances to encourage stay-at-home parents to return to the workforce and revisit the tax bands and lower the progressive rates to attract talent to Hong Kong. In order to build the territory into a world class smart city, KPMG China suggests the Government refine the current tax incentives for research and development (R&D) expenditure, as well as take the lead in digitalizing its work flow and service delivery in order to leverage the ongoing technological advancement for Government's operations.
Alice Leung, Tax Partner, KPMG China, says: "In order to attract talent and support business growth, the Government could introduce a tax concession where share-based remuneration offered by strategic enterprises to its Hong Kong employees would be exempt from Salaries Tax. Apart from this, the Government could provide immigration incentive by shortening the number of years required to obtain a Hong Kong permanent residency from 7 years to 4 years for successful applicants / employees under Quality Migrant Admission Scheme, Top Talent Pass Scheme and certain tax incentives to make it more attractive and comprehensive."
Possible long-term measures from the Government include enhancing sustainable economic growth and Hong Kong's competitiveness by attracting more foreign investment. When it comes to attracting businesses, including attracting companies to establish regional headquarters in Hong Kong, the Government should adopt 50% of the normal tax rate (i.e. 8.25%) for profits derived from regional headquarters in Hong Kong. KPMG China also suggests to enhance the tax system by providing clarity on the definition of non-taxable capital gains from the disposal of shares and other equity interests and relaxing the existing stringent conditions for tax deduction of interest expenses.
Stanley Ho, Tax Partner, KPMG China, says: "The Government should create a senior body to deal with tax policy issues, one that is responsible for enhancing Hong Kong's overall tax competitiveness as well as formulating the tax policies and measures for specific industrial sectors in Hong Kong. Moreover, they must expand and optimize the treaty network to cover other principal trading partners' jurisdictions and attract foreign investors to set up companies in Hong Kong, which in turn would promote economic development, enhancing Hong Kong's competitiveness in the long run."
As part of the Greater Bay Area (GBA) collaboration, KPMG China believes that the Government should extend the R&D tax deduction to cover R&D activities carried out in the GBA and provide accelerated tax depreciation allowance for fixed assets for set-ups in the Northern Metropolis.
The issuer is solely responsible for the content of this announcement.
About KPMG China
KPMG China has offices located in 31 cities with over 15,000 partners and staff, in Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Nantong, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Taiyuan, Tianjin, Wuhan, Wuxi, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited ("KPMG International") operate and provide professional services. "KPMG" is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively.
KPMG firms operate in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities.
KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in the Chinese Mainland. KPMG was also the first among the Big Four in the Chinese Mainland to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multidisciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.