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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 2019/20 Financial Budget Summary

The Financial Secretary, Mr. Paul Chan Mo-po, has presented his third budget for the year 2019/20 to the Legislative Council on 27 February 2019. 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”) in real terms is 3.0% in 2018. The Government forecasts real GDP growth of 2-3% and nominal GDP growth of 4.5 % - 5.5 % in the 2019 year.

The headline inflation rate for 2018 as a whole was 2.4 % while the underlying inflation rate was 2.6 % in 2018. The Government forecasts that the headline inflation rate for 2019 to be 2.5 % with an underlying inflation rate at 2.5 %.

The economic indicators are summarized as follows:

 
2018
2019 (Forecast)
2020-2023 Medium range forecast
Growth Domestic Product (GDP) Growth in real terms
3%
2 - 3%
3% per annum
Underlying inflation rate
2.6%
2.5%
2.5% per annum


The unemployment rate remained low in year 2018, averaging at 2.8 % for the year as a whole.

The 2018-19 revised estimate on government revenue is HK$ 596.4 billion, being 1.3 % or HK$ 8.1 billion lower than the original estimate. This is due mainly to the lower-than-expected revenues from land premium and stamp duties, while revenues from profits tax and salaries tax are higher than the original estimate by $16.1 billion. As for government expenditure, the Government forecasts a revised estimate of HK$ 537.7 billion, being 5.6% or HK$ 31.9 billion lower than the original estimate. For 2018-19, the Government now forecasts a surplus of HK$ 58.7 billion, and by 31 March 2019, fiscal reserves are expected to reach HK$ 1,161.6 billion while the Housing Reserve will reach HK$ 82.4 billion.

Total government revenue for 2019-20 is estimated to be HK$ 626.1billion. The government estimates that overall expenditure for 2019-20 will be HK$ 607.8 billion, and recurrent expenditure accounts for HK$ 441 billion. The government forecasts a surplus of HK$ 16.8 billion in the Consolidated Account in the coming year, and fiscal reserves are estimated to be HK$1,178.4billion by end of March 2020.

We summarize the 2019/20 budget highlights as follows:-

Highlights of the Budget

In the 2019/20 budget, the following are proposed:

Salaries tax and tax under personal assessment

Salaries tax and tax under personal assessment for 2018/19 will be reduced by 75%, subject to a ceiling of HK$20,000 (compared to the one-off tax reduction ceiling of HK$30,000 in the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2018/19.

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:

Tax Band
Net chargeable income
First HK$50,000 at
2%
Next HK$50,000 at
6%
Next HK$50,000 at
10%
Next HK$50,000 at
14%
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, progressive tax rates and marginal tax bands. For completeness, salaries tax payable is calculated at (a) progressive rates on a taxpayer’s net chargeable income or (b) at standard rate on his/her net income (before deduction of the allowances), whichever is lower.

The personal allowances and deductions for the 2019/20 year of assessment (and the current personal allowances and deductions) are summarized in the below table.

Allowances and Deductions
2018/19
(Existing)
HK$
2019/20
(Proposed)

HK$
Personal allowances:
   
Single 132,000 132,000
Married 264,000 264,000
Single parent 132,000 132,000
Disabled 75,000 75,000
Child    
  1st to 9th child (each)    
    - Year of birth 240,000 240,000
    - Other years 120,000 120,000
Dependent parent/grandparent
(for each dependant)
   
  Aged 60 or above or is eligible to claim an allowance under the Government’s Disability Allowance Scheme    
    - not residing with taxpayer OR 50,000 50,000
    - residing with taxpayer
  throughout the year
100,000 100,000
  Aged 55 to 59    
    - not residing with taxpayer OR 25,000 25,000
    - residing with taxpayer
  throughout the year
50,000 50,000
Disabled dependent 75,000 75,000
Dependent brother/sister 37,500 37,500
Deductions: Maximum
deduction
HK$
Maximum
deduction
HK$
  - Self education 100,000 100,000
  - Home loan interest 100,000
(20 years of assessment)
100,000
(20 years of assessment)
  - Approved charitable donations 35% of
assessable
income/profits
35% of
assessable
income/profits
  - Elderly residential care
  expenses
100,000 100,000
  - Contributions to recognised
  retirement schemes
18,000 18,000
  - Qualifying Voluntary Health
  Insurance Scheme Policy
  Premiums*
Not applicable 8,000 per insured person
  - Annuity Premiums and MPF
  Voluntary Contributions#
Not applicable 60,000

* Effective from year of assessment 2019/20.
# Proposed to be effective from year of assessment 2019/20. The relevant bill is being considered by the Legislative Council.


Profits Tax

Profits tax for 2018/19 will be reduced by 75% subject to a ceiling of HK$20,000 per case (compared to the one-off tax reduction ceiling of HK$30,000 in the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2018/19.

Per the Inland Revenue (Amendment) (No. 7) Bill 2017 which was gazetted on 29 December 2017, the Inland Revenue Ordinance will be amended to introduce two-tiered profits tax rates for (a) corporations and (b) unincorporated businesses starting from the year of assessment 2018/19 as follows: –


 
Tax Rates starting from 2018/19
 Assessable profits
Corporations
Unincorporated Businesses
 First HK$2 million
8.25%
7.5%
 Beyond the first HK$2 million
16.5%
15%

Current profit tax rate is 16.5% (corporations) or 15% (unincorporated businesses).

Property Tax

Property tax rate remains unchanged at 15%. The proposed 75% tax reduction of up to a ceiling of HK$20,000 for 2018/19 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.

Other tax related proposals and tax highlights

The Government mentioned the following:
(a)
The Government will consider establishing a limited partnership regime and introducing tax arrangement to attract private equity funds to set up and operate in Hong Kong.
(b)
To promote the development of marine insurance so that shipowners and shipping companies can enjoy better support, the Government will offer a 50 per cent profits tax concession to eligible insurance businesses including the marine insurance industry.
(c)
Given that many multinational corporations co-locate their corporate treasury centres (CTCs) with their regional headquarters, the Government has been offering tax concessions to qualifying CTCs since 2016. The Government will continue to enhance the relevant tax measures to strengthen Hong Kong’s competitiveness.
(d)
The Government has been actively expanding the network of Comprehensive Avoidance of Double Taxation Agreements (CDTAs) to enhance Hong Kong business environment and draw in investment. The Government’s target is to bring the total number of CDTAs to 50 tax jurisdictions in the next few years (currently 40).

Pilot Bond Grant Scheme, Silver Bonds and Green Bond

The Government has introduced a host of measures to promote the development of Hong Kong's bond market. These include launching the Pilot Bond Grant Scheme to encourage enterprises to issue bonds in Hong Kong, as well as offering tax concessions to attract more investors to our bond market.

The Government is gearing up for the inaugural issuance of government green bonds and will encourage the relevant sectors to incorporate green elements into corporate governance and operation in a more effective manner.



Other new measures
 
(a)
One-off measures:

(1)
Waive rates for all four quarters of 2019/20, subject to a ceiling of HK$1,500 per quarter for each rateable property (being HK$2,500 in 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 (being extra two months in the previous year).

(3)
Provide a one-off grant of HK$2,500 to each student in need.

(4)
Pay the examination fees for school candidates sitting for the 2020 Hong Kong Diploma of Secondary Education Examination.

(5)
Provide a one-off additional HK$1,000 worth of Elderly Health Care Vouchers, and increase the accumulation limit of vouchers to $8,000.

(b)
Supporting enterprises:

(6)
Waive the business registration fees for 2019/20.

(7)
Regularise the Technology Voucher Programme and double the funding ceiling for enterprises to HK$400,000.

(8)
Inject HK$1 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales, extend its geographical scope and increase the funding ceiling for enterprises.

(9)
Extend the application period of the special concessionary measures under the SME Financing Guarantee Scheme to end June 2020.

(10)
Expand the networks of Free Trade Agreement, Investment Promotion and Protection Agreement, and Comprehensive Avoidance of Double Taxation Agreement.

(11)
Expand the Economic and Trade Office network to strengthen external promotion and assist Hong Kong enterprises in exploring new business opportunities.

(c)
Others:

(12)
Estimated production of public housing for the next 5 years is about 100,400 units.

The 2019-20 Land Sale Programme includes 7 commercial/hotel sites, capable of providing about 814,600 square meters of floor area.

(13)
To improve the existing public healthcare services, the Government will (a) earmark $10 billion as a Public Healthcare Stabilisation Fund to ensure stable funding for public healthcare services and for coping with unexpected circumstances and (b) earmark $5 billion to expedite the upgrading and acquisition of medical equipment.

(14)
Regarding the area of innovation and technology, the Government will (a) set aside $5.5 billion for the development of Cyberport 5 to accommodate more technology companies and start-ups, (b) set aside $16 billion for universities to enhance or refurbish campus facilities, in particular those for R&D, (c) inject $20 billion into the Research Endowment Fund of the Research Grants Council under the University Grants Committee to provide research funding, (d) establish two innovative clusters in the Science Park focusing on “A.I. and robotic technologies” and “healthcare technologies”, pooling top-notch universities and institutions to collaborate and undertake R&D activities.

(15)
To support tourism, the Government will allocate $353 million for the continued implementation of the Development Blueprint for Hong Kong’s Tourism Industry.

(16)
Regarding education, the Government will allocate $500 million to implement the IT Innovation Lab in the coming 3 school years; each aided secondary school will be granted $1 million to help students to build IT foundation.



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