Goods and Services Tax (Hong Kong) - AbsoluteAstronomy.com

Goods and Services Tax was a proposed Value Added Tax

Value added tax

A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...

in Hong Kong

Hong Kong

Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...

. Consultation over a period of nine months was launched on 2006-07-19 and stirred considerable controversy.

It launched a fierce debate amongst local taxpayers, lawmakers, journalists, politicians, who hotly debated the need for the tax, and the shape any taxes should take. The plan to levy GST was dropped on 2006-12-05.

Objectives

The Government argued that Hong Kong's tax base was narrow; thus, a single-rate GST was a viable option for Hong Kong in order to broaden the tax base and secure the sustainability of tax revenues base and the capacity to meet public expenditure needs in the long run.

The economic context

According to Denise Yue Chung-yee, 17% of working people paid 80% of the income tax of Hong Kong, i.e. households with monthly income more than HK$45 000 pay 80% of income tax of Hong Kong. Meanwhile, a signification portion of those 17% of working people was double income families. They are not really middle class, but only theoretically lower middle class who have economic ability of middle class. For example, a man who earns $40000 a month pays "negligible" amount of income tax, while a family composed of a woman earning $30000 and a man earning $30000, totally earning $60000 a month need to pay "very heavy" tax. The GST was supposed to curb this social problem. However, the marketing sector was getting to be the sector which employs most employees, and GST will harm the marketing sector. In addition, it was doubted whether households who earn around $20000 a month had the economic ability to pay tax.

The Goods and Services Tax

The GST would be levied at a flat rate of 5%. The government would undertake to decrease or eliminate other taxes to make it revenue neutral.

Key features

exports of goods, international supplies, and financial supplies would not be subject to GST;
residential property sales and rentals would not be subject to GST;
GST postponement schemes would be provided to alleviate importers' cash-flow issues arising from GST;
the Government would be GST-registered to provide a level playing field with the private sector;
a Tourist Refund Scheme would be included to allow visitors to obtain a refund of GST on goods they had purchased in Hong Kong and were taking home with them; and
charities would be treated as "taxable persons" to allow them to reclaim input GST.

For individuals

reduction in tax rates for all existing taxpayers, provided registered by Mr. Bhupal Thakur;
an upfront, one-off supplement would be provided to households Social Security benefits;
an annual cash GST allowance on a per-household basis for low-income households not receiving CSSA;
a universal annual "GST credit" for each household to be used against water and sewage charges for an initial five-year period; and
a universal annual "GST credit" per household to be used against rates for an initial five-year period.

For businesses

a cut in profits-tax rates;
abolishing the capital fee to encourage more businesses to incorporate in Hong Kong;
reducing the motor vehicle first registration tax and duties on liquor, petrol, diesel, aircraft fuel and methyl alcohol;
cutting charges for import and export declarations;
abolishing the 3% hotel accommodation tax;
increasing tax-deduction limits for charitable donations; and
one-off set-up assistance to small and medium-sized businesses that volunteered to register for GST.

Pledge to maintain revenue neutrality

The Government proposed that, for the first five years after the GST's introduction, all revenue it would generate after deducting administrative costs would be returned to the community as tax relief and other compensation measures, for example, salaries or profits tax reduction, or to increasing public spending on education, health, social welfare, law and order or infrastructure.

Opposition

The GST proposal was universally condemned by all the major parties in Legco.

The first protest against GST was held on 7 August 2006 by the Liberal Party

Liberal Party (Hong Kong)

Liberal Party is a business-friendly liberal conservative political party in Hong Kong.-Party beliefs:The party is known for its conservative and business-friendly policies. Despite being a political party friendly with Beijing, it fits in the centre-right political spectrum...

. Over 6000 people participated. The second protest against GST was held on 20 August 2006 by the Democratic Party

Democratic Party (Hong Kong)

The Democratic Party is a pro-democracy political party in Hong Kong. It was established on 2 October 1994. The party is currently the second largest party in the Legislative Council, headed by Chairman Albert Ho Chun-yan and, following the November 2008 merger with the Frontier, had around 745...

. About 500 people participated.

According to Financial Secretary

Financial Secretary (Hong Kong)

Financial Secretary , often abbreviated as FS, is a position of the Government of Hong Kong. The FS assists the Chief Executive in supervising the policy bureaux as directed by the CE, mostly finance and economy-related, and plays a key role in ensuring harmonisation in policy formulation and...

Henry Tang

Henry Tang Ying-yen, GBM, GBS, JP was the Chief Secretary for Administration of Hong Kong until his resignation in September 2011. He is a candidate in the Hong Kong Chief Executive election of 2012, and believed to be preferred by Beijing....

, the government had collected 2,200 written submissions in the five months of consultations - with 65 percent opposed to the plan and 30 percent in favour.

Demise

In a surprise announcement made on 5 December 2006, Henry Tang Ying-yen withdrew the plan citing lack of public support. "It's clear ... that we've not been able to convince the majority to accept a GST as the main option to address the tax base problem," he said. The withdrawal was linked to the comments, three days earlier, of Chinese state leader Wu Bangguo

Wu Bangguo

Wu Bangguo is a high-ranking politician in the People's Republic of China. He is currently Chairman and Party secretary of the Standing Committee of the National People's Congress, a position that makes him China's chief legislator...

to senior Hong Kong officials "to keep their fingers on the pulse of the people" and to foster "social harmony", and to the impending sub-sector polls for the Election Committee

Election Committee

The Election Committee is an 800-member electoral college in the politics of Hong Kong. It was established by Annex I of the Basic Law of Hong Kong. This article defines the method of electing the Chief Executive. It is renewed every five years when the sitting Chief Executive's term has expired...

which will pick the new Chief Executive

Chief Executive of Hong Kong

The Chief Executive of Hong Kong is the President of the Executive Council of Hong Kong and head of the Government of the Hong Kong Special Administrative Region. The position was created to replace the Governor of Hong Kong, who was the head of the Hong Kong government during British rule...

in March 2007. However, after the announcement, Henry Tang insisted the decision to withdraw the proposal was "entirely my own," and free of any political consideration.