Total Hong Kong tax revenue declines 4 per cent amid property slump

Hong Kong’s tax revenue is set to take the biggest hit in six years, falling five per cent to HK$276.8 billion by the end of next March, mostly due to a 20 per cent plunge in stamp duty.

The projection was made by the tax department yesterday after it recorded a 4 per cent drop in revenue for the 2015-16 fiscal year, reversing the trend since 2010-11 when tax revenue kept swelling year on year.

The last time tax revenue was seen contracting was in 2009-10 as the city was hit by the global financial crisis. Tax revenue for 2009-10 dropped by 6.5 per cent from the previous year.

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In 2015-16, the Inland Revenue Department collected HK$291.3 billion. Almost half of it, or HK$140.2 billion, came from profits tax, while salaries tax made up HK$57.9 billion and stamp duty another HK$62.7 billion.

Commissioner of Inland Revenue Wong Kuen-fai said yesterday the poor property and stock markets were to blame for the fall in stamp duty.

According to his department’s latest figures, stamp duty contracted by 16 per cent, or HK$12.1 billion, to HK$62.7 billion in 2015-16 from the previous year. The department predicted it could further drop 20 per cent to HK$50 billion in 2016-17.

Wong denied he was being pessimistic about the outlook of the property market but said: “We see that the volume of property transactions has been dropping.”

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Land Registry figures showed sales dropped by 12 per cent to 56,000 transactions for the whole of 2015.

Economist Professor Terence Chong Tai-leung, executive director of the Lau Chor Tak Institute of Global Economics and Finance, proposed imposing a goods and services tax. “The economy is not going to do very well in the years to come,” he said. “We should not rely too much on the profits and salaries taxes or stamp duty as our major sources of revenue.”

EY Hong Kong and Macau tax managing partner Tracy Ho echoed his views, adding: “The high level of fiscal reserves [over HK$843 billion as at 31 Mar 2016] allow us to consider reforming our taxation system ... Hong Kong can introduce generous compensatory measures and starting with a very low rate of GST, so as to let the public get used to it.”

Despite a weakening economy over the past year, profits tax revenue in 2015-16 rose slightly by two per cent to HK$140.2 billion. But the Inland Revenue Department projected it would see a 2 per cent decline in 2016-17 to HK$138.1 billion.

Salaries tax revenue dropped 2 per cent to HK$57.9 billion in 2015-16. The department however expected the figure to rise by five per cent in 2016-17 to HK$60.5 billion.

Wong also asked the city’s 2.54 million taxpayers to watch out for the “green envelopes” within the next couple of days. They will have to file their tax returns by June 3, with an extra month for those who do it online.