Hong Kong Financial Secretary John Tsang predicted in the new fiscal budget that Hong Kong's economic growth in 2016 will be between 1% and 2%, lower than last year's 2.4%. Citizens, businesses, and the government are all facing pressure. The budget announced tax and relief measures involving HKD 38.8 billion to assist citizens and businesses, reducing the burden on taxpayers and boosting the economy.
Reduction of Personal Tax by the Government Amounting to HKD 17 billion
Taxpayers will benefit significantly, including a 75% reduction in salaries tax and personal income tax (approximately equivalent to individual income tax in Mainland China) for the 2015/2016 fiscal year, with a cap of HKD 20,000. A total of 1.96 million taxpayers will benefit, resulting in a revenue reduction of HKD 17 billion for the government; various allowances will be increased, leading to a tax revenue reduction of HKD 37.6 billion, etc. In fact, due to various allowances and deductions, the threshold for paying salaries tax (similar to individual income tax in Mainland China) has been raised, and currently, only nearly half of the working population in Hong Kong is required to pay salaries tax.
Children, parents, and siblings are exempt from tax
Currently, Hong Kong residents paying personal income tax can enjoy various allowances and deductions. Allowances are divided into personal allowances and other allowances, with other allowances including children, dependent parents/grandparents, dependent siblings, and dependents with disabilities. Deductions include personal education expenses, mortgage interest, approved charitable donations, elderly care expenses, and contributions to approved retirement plans, each with a cap. This means that after deducting various allowances and deductions from taxpayers' income, the tax payable is calculated according to the tax rate. Due to the continuous increase in the caps of various allowances and deductions over the years, currently, more than half of the working population in Hong Kong does not need to pay salaries tax, with approximately 1.96 million taxpayers paying salaries tax and personal income tax.
Only 9% of registered companies pay profits tax
Citizens will benefit from the reduction in personal tax, and businesses will also benefit from the reduction in profits tax. John Tsang announced that to alleviate the burden on businesses, there will be a 75% reduction in profits tax for the 2015/2016 fiscal year, with a cap of HKD 20,000, benefiting 130,000 taxpayers across Hong Kong. Similarly, due to high allowances and other policies, only a small number of businesses in Hong Kong are required to pay profits tax. Hong Kong implements a simple tax system, with only salaries tax, profits tax, and stamp duty as the main tax types. The budget also announced the waiver of the business registration fee for the 2016/2017 fiscal year, benefiting 1.3 million business operators. Additionally, there are corresponding measures for financing guarantees for small and medium-sized enterprises, funding for small and medium-sized enterprises to use technology services and solutions, etc.