HONG KONG, Feb. 18, 2020 /PRNewswire/ — KPMG forecasts the Hong Kong SAR government will record a consolidated budget deficit of HKD47.7 billion for the fiscal year 2019/20, first deficit in 15 years. The decrease is mainly driven by additional relief measures and increased recurring expenditure, reduced tax revenue and land sales revenues.
The deficit is expected to result in fiscal reserves of around HKD1,123 billion by the end of March 2020, which is equal to about 31 months of government recurring expenditure. With the challenges from global and local uncertainties and the recent outbreak of the coronavirus providing the backdrop to a tougher outlook for Hong Kong, KPMG believes the SAR government should make good use of its fiscal reserves to support enterprises, safeguard jobs, stimulate the economy and relieve the people‘s burden.
John Timpany, Partner, Head of Tax in Hong Kong, , KPMG China, says: “The Hong Kong government should avoid the temptation to increase taxes or cut expenditure at a time when the city should in fact protect and even step up its domestic support programmes. The city should make good use of its strong reserves and direct it towards segments of the economy that need it most amid all the internal and external threats and uncertainties facing Hong Kong.”
Compared with the SARS period, when fiscal reserves were as low as HKD 275 billion, the city today is in a much stronger fiscal reserves position to support immediate measures to tackle the situation.
“Despite falling into a fiscal deficit, Hong Kong is still in a very healthy financial position with a robust balance sheet,” says Alice Leung, Partner, Corporate Tax Advisory, KPMG China. “With the current reserves, were the city to run a huge budget deficit, there would still be enough reserves to last for many years – as long as the government allocates the money to areas where the economy needs it most. The reserves are meant to prepare Hong Kong for rainy days, and we should use it timely and wisely to weather the storm we are in now.”
Immediate measures should look to assist local businesses, as well as promote local economic development. Such measures could include carrying tax loss backwards by allowing current year tax loss as a one-off set-off of previous year‘s taxable profits and refund excessive tax already paid, providing one-off subsidies for companies that have suffered a certain amount of tax loss, deferring tax filing and payments, and waiving provisional tax partially for 2020/21.
KPMG also suggests waiving rates for the four quarters of 2020/21 for each rateable property, and extending rent subsidies for Hong Kong Science Park, Cyberport and other public institutions for 6 to 12 months.
In the short-to-medium term, the focus should be on stimulating the economy. To this end, the government could consider giving out HK$10,000 electronic consumption vouchers targeting general consumption, food and entertainment to each Hong Kong permanent resident aged 18 or above, which would support industries that have suffered the most in the last year.
In order to support working families, KPMG suggests the government to offer an allowance to all working parents who look after their children or disabled dependants through grandparents. The government should also provide an allowance on rental expenses on residential properties, capped at HK$100,000 per year for 15 years.
As for SMEs, KPMG recommends introducing SME areas to provide office spaces at preferential rents. Furthermore, the government could look to promote and optimize existing reindustrialization and technology training programmes.
“Measures such as the roll out of electronic consumption coupons will immediately put cash into people‘s pockets and stimulate local consumptions, to help rebound of the economy, in particular, providing immediate relief for those sectors that were most affected by the recent events and the economic downturn that is expected to continue,” says Stanley Ho, Partner, Corporate Tax Advisory, KPMG China.
For the longer term, the government should strive to boost Hong Kong‘s economic development and competitiveness. It should thus introduce measures such as to adopt 50% of the normal tax rate (i.e. 8.25%) for profits derived by regional headquarter in Hong Kong, to attract companies to establish their regional headquarters in the city and create job opportunities in local workers. In terms of further strengthening Hong Kong’s role as an international financial center, the government could offer tax incentives to attract family offices and fund managers to Hong Kong, complementing the fund tax incentives introduced in the past years.
KPMG also recommends the government to expand and optimize its tax treaty network, and implement a preferential patent box tax regime. This would encourage more foreign investors to set up their companies in Hong Kong, which in turn would promote economic development, enhancing Hong Kong’s competitiveness in the long-run.
About KPMG China
KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as “KPMG China”. KPMG China is based in 23 offices across 21 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi’an, Zheng Zhou, 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 network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China 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 multi-disciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.