Why doesn’t Hong Kong charge GST?

Hong Kong has a very lenient tax regime because of their ridiculously expensive property market. But the downside to this is that citizens are suffering from the high property market. Although they do not pay much in income tax and there is no GST, they pay heavily in rentals and trickled down costs because of rentals.

Hong Kong thrives on low taxes to attract companies and expats to invest in the country. The government relies heavily on the property market for so much of its revenues. Income from land sales, land premium – the fees developers pay for a change in land use – property rates and stamp duty on real estate deals together make up around 25 per cent of the government’s revenues.

Add in the profits tax paid by developers and the salaries tax levied on their employees, and the contribution of the property sector to the government’s coffers climbs to somewhere near 50 per cent. This reliance on the property market has fostered an institutional bias within the government in favour of high property prices.

However, the government cannot reverse this. 

Its citizens literally cannot afford to hope their families. Rentals have been rocketing, property sizes shrunk and its costs is trickling down to all of Hong Kong society. 

The only way to fix this, is for the government to supplement its income through taxes. But this is not easy. The people and society are so used to paying low taxes, they cannot raise taxes without facing consequences. Companies can leave, people can revolt and they also have to consider how China would react.

When the government slipped into deficit in 1999, financial organisations all advised Hong Kong to overhaul its tax regime. When Donald Tsang became chief executive in 2005, he duly attempted to introduce a universal goods and services tax (GST).

This did not go down well.

Opposition to Tsang’s proposed GST was so vehement that he was forced to abandon his proposals. But with the government so dependent on the property market, when prices turn down once again the idea is bound to resurface.

In Singapore’s case, we have dealt with GST with great skill and care since day one. Singapore understands GST is meant to help the poor. So although GST is levied on products such as rice, oil and medicine… it is also returned to Singaporeans each year in a GST Voucher exercise. This way, only the rich are taxed through consumption and not the poor.

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