By JP Floru

At a dinner in London two weeks ago, Hong Kong’s Chief Executive Donald Tsang unwittingly rubbed the Coalition Government’s inadequate tax policies in fellow attendant Vince Cable’s face (or, more precisely, he would have done so, if Vince hadn’t been late). Tsang happily elaborated on the HK $6,000 cheque the Hong Kong government is going to send to each one of its 6 million permanent residents aged 18 or above. Hong Kong currently has a HK $71.3 billion budget surplus.

The HK $71.3 billion budget surplus is after all possible public works and other spending plans have been taken care of (Hong Kong’s government spending is 18.6% of GDP). And the HK $6,000 cheque is not even the complete story: in addition, 75% of salaries’ taxes will be waived, subject to a maximum of HK $6,000 per taxpayer.

The rebate comes on top of already very low existing taxes. Corporations pay a flat tax of 16.5%.  Individuals pay a salaries tax which is stepped from 2 to 17%, with numerous deductions (mortgages, charitable giving, education, pensions, care of elderly relatives). But the total is topped to 15%, meaning that one can choose to pay whatever is the lowest. Because of the deductions most employees pay little or no tax. The top 2% choose the top 15% rate – they account for half of all revenue from the salaries tax.

Hong Kong’s budget surplus of HK $71.3 billion would amount to £51 billion for the UK if apportioned to population size; and to £58 billion if apportioned to GDP (Source of GDP and population figures: US Department of State). 

Hong Kong is prime evidence to show that low taxes increase the size of the economy; thereby ultimately making the total tax take grow. The UK could do this too. It chooses not to, thereby encouraging individuals and businesses to flee to places like Hong Kong. It is very odd: one would have assumed that the Coalition Government wanted to receive more money, not less.

In 2010, Hong Kong’s economy grew by 6.8 %; the UK economy grew by 1.25% (Source: IMF). Hong Kong is the freest economy according to the 2011 Index of Economic Freedom.

Fact Sheet: What is the tax rate in Hong Kong?

  • Profit tax for corporations:  A flat rate of 16.5%
  • Profit tax for unincorporated businesses:  A flat rate of 15%
  • Businesses receive a 75% reduction in their taxes up to a ceiling of HK $25,000 per case
  • Salaries tax: Stepped from 2 to 17 % after deductions and allowances. Or, a flat rate of 15%
  • No NIC, no VAT, no tariffs on imports, no capital gains tax. There is a property tax

Source: HK Inland Revenue 2010-2011 (pdf)