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Hodgson Impey Cheng Taxation Services Limited is a division of the HLB Hodgson Impey Cheng Limited group. HLB Hodgson Impey Cheng Limited is a firm of Chartered Accountants and Certified Public Accountants, and a member of HLB International, a worldwide network of independent professional accounting firms and business advisers. The firm was formed in 1983 but can trace its origins back 60 years in Hong Kong, and over 200 years in the United Kingdom.


Hong Kong 2017/18 Financial Budget Summary

The Financial Secretary, Mr Paul Chan Mo-po, presented his first budget for the year 2017/18 to the Legislative Council on 22 February 2017. Mr Chan, being the former secretary for development, is responsible for the 2017/18 Budget but this Budget did not deviate from the Hon John Tsang’s budgetary framework due to the short period of time he was on board as Financial Secretary. The budget proposals will need approval by the Legislative Council before taking effect. The proposals do not become law until their enactment.

Economic Performance and Outlook

Growth rate of gross domestic product (“GDP”) is 1.9% in 2016. The Government forecasts real GDP growth of 2% - 3% and nominal GDP growth of 4% - 5% in the 2017 year.

The headline inflation rate for 2016 as a whole was 2.4% while the underlying inflation rate was 2.3% in 2016. The Government forecasts that the headline inflation rate for 2017 as a whole to be 1.8% with an underlying inflation rate at 2%.

The economic indicators are summarised as follows:

 
2016
2017 (Forecast)
2018-2021 Medium range forecast
GDP Growth
1.9%
2 - 3%
3%
Underlying inflation rate
2.3%
2%
2.5%


The unemployment rate remained low in year 2016, averaging at 3.4% for the year as a whole.

The 2016-17 revised estimate on Government revenue is HK$559.5 billion, being HK$61.3 billion higher than the original estimate. This is due mainly to the increase in revenue from land sales and stamp duty. For 2016-17, the Government now forecasts a surplus of HK$92.8 billion, and by 31 March 2017, fiscal reserves are expected to reach HK$935.7 billion.

Total Government revenue for 2017-18 is estimated to be HK$507.7 billion. The Government estimates that operating expenditure for 2017-18 will be HK$384.2 billion, and recurrent expenditure accounts for HK$371 billion. Capital expenditure is forecast to be HK$107.2 billion for 2017-18. Total overall Government expenditure for 2017-18 is estimated to be HK$491.4 billion in the next financial year. The Government forecasts a surplus of HK$16.3 billion in the Consolidated Account in the coming year, and fiscal reserves are estimated to be HK$952 billion by end of March 2018.

We summarize the 2017/18 budget highlights as follows:-

Highlights of the Budget

In the 2017/18 budget, the following are proposed:

Salaries tax and tax under personal assessment

Salaries tax and tax under personal assessment for 2016/17 will be reduced by 75%, subject to a ceiling of HK$20,000 (i.e. this one-off reduction is the same as that of the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2016/17.

Salaries tax rates

An individual’s income from employment less allowable deductions, charitable donations and personal allowances, will be chargeable to salaries tax at the following progressive tax rates:

Year of Assessment
2017/18 (Proposed)
 
2016/17 (Present)
Net chargeable income (Tax band)
Rate
Net chargeable income (Tax band)
Rate
First HK$45,000 at
2%
First HK$40,000 at
2%
Next HK$45,000 at
7%
Next HK$40,000 at
7%
Next HK$45,000 at
12%
Next HK$40,000 at
12%
On the remainder at
17%
On the remainder at
17%

However, the maximum tax payable is limited to tax at the standard rate of 15% on the individual’s income from employment less allowable deductions and charitable donations but without taking into account the personal allowances.

Per the Budget, there is no change in the standard tax rate. However, the marginal tax bands regarding the progressive tax rates for salaries tax purpose will be widened from the current HK$40,000 to HK$45,000 commencing from the year of assessment 2017/18 (see above table).

The personal allowances and deductions for the 2017/18 year of assessment will be as follows:

Allowances and Deductions
2017/18
(Proposed)
HK$
2016/17
HK$
Personal allowances:
   
Single 132,000 132,000
Married 264,000 264,000
Single parent 132,000 132,000
Child    
  1st to 9th child (each)    
    - Year of birth 200,000 200,000
    - Other years 100,000 100,000
Dependent parent/grandparent    
  Aged 60 or above    
    - not residing with taxpayer 46,000 46,000
    - residing with taxpayer
  throughout the year
92,000 92,000
  Aged 55 to 59    
    - not residing with taxpayer 23,000 23,000
    - residing with taxpayer
  throughout the year
46,000 46,000
Disabled dependent 75,000 66,000
Dependent brother/sister 37,500 33,000
Deductions: 2017/18 (Proposed)
Maximum deduction HK$
2016/17
Maximum deduction HK$
  - Self education 100,000 80,000
  - Home loan interest 100,000
(20 years of assessment)
100,000
(15 years of assessment)
  - Approved charitable donations 35% of
assessable
income/profits
35% of
assessable
income/profits
  - Elderly residential care expenses 92,000 92,000
  - Contributions to recognised retirement schemes 18,000 18,000

As noted above, the Financial Secretary proposes to:
(i)
Increase the disabled dependant allowance from HK$66,000 to HK$75,000, and the dependent brother or dependent sister allowance from HK$33,000 to HK$37,500 effective from the year of assessment 2017/18;
(ii)
Raise the deduction ceiling for self-education expenses from HK$80,000 to HK$100,000 effective from the year of assessment 2017/18; and
(Iii)
Extend the entitlement period for deduction for home loan interest from 15 to 20 years of assessment commencing from the year of assessment 2017/18, while maintaining the current deduction ceiling of HK$100,000 a year.

Profits Tax

Profits tax for 2016/17 will be reduced by 75% subject to a ceiling of HK$20,000 per case (this one-off reduction is the same as that of the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2016/17.

There are no proposals in relation to adjustment of profits tax rate in the coming year. The profits tax rates are summarized as follows:


 
2017/18
2016/17
Company
16.5%
16.5%
Unincorporated business
15%
15%

Property Tax

Property tax rate remains unchanged at 15%. The proposed 75% tax reduction of up to a ceiling of HK$20,000 for 2016/17 is not applicable to property tax. However, individuals with rental income, if eligible for personal assessment, may be able to enjoy such reduction under personal assessment.

Stamp Duty

There are no additional stamp duty measures being proposed in the Budget speech.

The latest stamp duty proposal was delivered by the Hong Kong Government on 4 November 2016 in regards to the ad valorem stamp duty (“AVD”). The Government had announced that the Stamp Duty Ordinance would be amended to increase the AVD rates for residential property transactions to a flat rate of 15%. Under the Government’s proposal, any instrument executed on or after 5 November 2016 for the sale and purchase or transfer of residential property, unless specifically exempted or provided otherwise, will be subject to the proposed new AVD rate (a flat rate at 15% of the consideration or value of the residential property, whichever is the higher). The exemptions and exceptions regarding the AVD will not be affected. Thus, a Hong Kong Permanent Resident (“HKPR”) acquiring a residential property where he/she is acting on his/her own behalf and does not own any other residential property in Hong Kong at the time of acquisition will continue to be subject to AVD at the low Scale 2 rates. The refund mechanism under the existing regime for HKPR buyer who changes his/her single residential property will also be retained. The amendment will not affect transactions relating to non-residential properties. The Stamp Duty (Amendment) Bill 2017 (“the Bill”) was gazetted on 27 January 2017. The Bill was introduced into the Legislative Council on 8 February 2017.


First registration tax for electric vehicles

To promote a wider use of electric vehicles to replace diesel and petrol vehicles so as to improve roadside air quality, the First Registration Tax of electric commercial vehicles, motor cycles and motor tricycles will continue to be fully waived from 1 April 2017 to 31 March 2018. The First Registration Tax waiver for electric private cars will be capped at HK$97,500.

Other tax related proposals and tax highlights

The Government mentioned the following:
(a)
To encourage the use of private healthcare services by the public, tax deduction for the purchase of regulated health insurance products will be provided; details of which are being examined by the Government.
(b)
It is proposed that a tax policy unit to be set up to comprehensively study ways from a macro perspective to foster development of industries through tax measures, to strengthen Hong Kong’s international competitiveness, and to enhance the Hong Kong tax regime.
(c)
The Government will introduce a Bill in the 2017 year regarding the offering of tax concession to promote the aircraft leasing and financing industry.
(d)
To facilitate Hong Kong’s development into a full-fledged fund service centre, the Government proposes to extend the profits tax exemption to onshore privately- offered open-ended fund companies.
(e)
Regarding the package of measures put forward by the Organisation for Economic Co-operation and Development to tackle “base erosion and profit shifting” (“BEPS”), Hong Kong has joined the inclusive framework set up by the international community for implementing the BEPS package.
(f)
The Government will continue its effort in expanding the network of Comprehensive Avoidance of Double Taxation Agreements.

New measures to support small and medium enterprises ("SMEs")

The measures catering for the SMEs include the following:
(a)
Extend the application period for the Dedicated Fund on Branding, Upgrading and Domestic Scales for five years to June 2022 to assist Hong Kong enterprises in furthering their business development in the Mainland.
(b)
Extend the application period for the special concessionary measures under the SME Financing Guarantee Scheme to 28 February 2018.
(c)
Propose to strengthen the underwriting capacity of the Hong Kong Export Credit Insurance Corporation (“ECIC”) by raising the cap on the contingent liability of ECIC under contracts of insurance from HK$40 billion to HK$55 billion.

Supporting measures to tourism industries

Similar to the previous year, the Government announced to implement the following measures that cater the tourism industries:
(a)
Waive the licence fees for 1,800 travel agents for 1 year;
(b)
Waive the licence fees for over 2,000 hotels and guesthouses for 1 year;
(c)
Waive the licence fees for restaurants and hawkers and fees for restricted food permits for 1 year, benefiting 27,000 restaurants and operators;

The above-mentioned waiver of licence fee is the same as that of the previous year.

In addition, the Government will allocate HK$243 million for enhancing Hong Kong’s appeal as a tourist destination to attract high-spending visitors.



Other new measures

 
(a)
One-off measures
(1)
Waive rates for all four quarters of 2017/18, subject to a ceiling of HK$1,000 per quarter for each rateable property (this is the same waiver amount as that of the previous year)
(2)
Provide an extra one month of Comprehensive Social Security Assistance payment, Old Age Allowance, Old Age Living Allowance and Disability Allowance (this concession is the same as that of the previous year)
(b)
Others:
(3)
Public housing production is estimated to be 94,500 units from 2016-17 to 2020-21.

The 2017-18 Land Sale Programme comprises a total of 28 residential sites, including 20 new sites, capable to providing about 19,000 residential units. In addition, the Land Sale Programme for the coming financial year includes three commercial/business sites and one hotel site, capable of providing about 172,000 square metres of floor area and some 550 hotel rooms respectively.
(4)
The Government will embark a total of HK$30 billion to strengthen elderly services and rehabilitation services for persons with disabilities. In addition, the Government proposes to enhance the Old Age Living Allowance, and lower the eligibility age for Elderly Health Care vouchers from 70 to 65 years of age.
(5)
The Government will embark a total of HK$20 billion for sports development, and will launch 26 projects in the coming five years to develop new or improve existing sports and recreation facilities in different districts.
(6)
The Government will deploy HK$1 billion for youth development, including the provision of HK$700 million for the Education Bureau to strengthen its efforts in promoting vocational and professional education and training, facilitating the training and professional development of principals and teachers, and enhancing support for local post-secondary students. In addition, an allocation of HK$200 million will be provided in 2017/18 for the Home Affairs Bureau to expand the Multi-faceted Excellence Scholarship to support local students who excel in areas other than academic performance, and an additional HK$100 million to expand the International Youth Exchange Programme in order to broaden young peoples’ horizons. The Government will also inject an additional 1.5 billion into the Continuing Education Fund in 2017/18.
(7)
To encourage private investment in local Innovation & Technology start-ups, the Government sets up a HK$2 billion Innovation and Technology Venture Fund (“ITVF”). The ITVF will co-invest in local Innovation & Technology start-ups with venture capital funds on a matching basis of about one to two. In addition, to promote the use of Innovation & Technology in daily lives, the Government will launch a HK$500 million Innovation and Technology Fund for Better Living to finance Innovation & technology projects.
(8)
In terms of education, the major new initiatives include the implementation of free quality kindergarten education policy from the 2017/18 school year, and regularizing the Study Subsidy Scheme for Designated Professions/Sectors from the 2018/19 academic year, and increasing the number of subsidized places to about 3,000 per cohort.
(9)
The Government announced that it will provide financial support for the abolishment of the Mandatory Provident Fund offsetting arrangement.
(10)
The Government will issue a second batch of Silver Bond in 2017-18, and study the feasibility of a public annuity scheme.


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