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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 2020/21
Financial Budget Summary


The Financial Secretary, Mr. Paul Chan Mo-po, has presented his fourth budget for the year 2020/21 to the Legislative Council on 26 February 2020. 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

Gross domestic product (“GDP”) in real terms dropped by 1.2% in 2019. Growth rate of gross domestic product (“GDP”) in real terms is -1.9% in 2019. The Government forecasts real GDP growth of -1.5-0.5% and nominal GDP growth of 0.5-2.5% in 2020.

The headline inflation rate for 2019 as a whole was 2.9% while the underlying inflation rate was 3% in 2019. The Government forecasts that the headline inflation rate for 2020 to be 1.7% with an underlying inflation rate at 2.5%.

The economic indicators are summarized as follows:

 

2019

2020 (Forecast)

2021-2024 Medium range forecast

Growth Domestic Product (GDP) Growth in real terms

-1.2%

-1.5 - 0.5%

2.8% per annum

Underlying inflation rate

3%

2.5%

2.5% per annum


The average unemployment rate in year 2019 has increased to 3.4 % for the year as a whole.

The 2019/20 revised estimate on government revenue is HK$567.3 billion, being 9.4% or HK$58.8 billion lower than the original estimate. This is due mainly to the lower-than-expected revenues from land premium and stamp duties, and revenues from profits tax and salaries tax are lower than the original estimate by HK$53.4 billion. As for government expenditure, the Government forecasts a revised estimate of HK$611.4 billion, being 0.6% or HK$3.6 billion higher than the original estimate. For 2019/20, the Government now forecasts a deficit of HK$37.8 billion, and by 31 March 2020, fiscal reserves are expected to reach HK$1,133.1 billion.

Total government revenue for 2020/21 is estimated to be HK$572.5 billion. The government estimates that overall expenditure for 2020/21 will be HK$731.1 billion, and recurrent expenditure accounts for HK$486.6 billion. The government forecasts a deficit in the Consolidated Account of the range between HK$7.4 billion to HK$17 billion in the coming year, and fiscal reserves are estimated to be HK$994 billion by end of March 2021.

We summarize the 2020/21 budget highlights as follows:-

Highlights of the Budget

In the 2020/21 budget, the following are proposed:

Salaries tax and tax under personal assessment

Salaries tax and tax under personal assessment for 2019/20 will be reduced by 100%, subject to a ceiling of HK$20,000 (same as last year). The reduction will be reflected in the final tax payable for the year of assessment 2019/20.

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 band. 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 2020/21 year of assessment (and the current personal allowances and deductions) are summarized in the below table.

Allowances and Deductions

2019/20
(Existing)
HK$

2020/21
(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

8,000 per insured person

8,000 per insured person

  • Annuity Premiums and MPF Voluntary Contributions

60,000

60,000



Profits Tax

Profits tax for 2019/20 will be reduced by 100% subject to a ceiling of HK$20,000 per case (same as last year). The reduction will be reflected in the final tax payable for the year of assessment 2019/20.

Property Tax

Property tax rate remains unchanged at 15%. The proposed 100% tax reduction of up to a ceiling of HK$20,000 for 2019/20 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:

  1. Waive stamp duty on stock transfers paid by the Exchange Traded Fund (ETF) market makers when creating and redeeming ETF units in Hong Kong.

  2. Establish a limited partnership regime and provide tax concession for carried interest issued by private equity funds to attract them to domicile and operate in Hong Kong.

  3. Continue to provide 300% tax deduction for the first HK$2 million and a 200% deduction for the remaining amount for qualifying research and development (“R&D”) expenditure incurred by enterprises and subsidising local R&D work.

  4. Offering a profits tax exemption to qualifying ship lessors and a half-rate profits tax concession to qualifying ship leasing managers; and half-rate tax concession for eligible insurance businesses.

Pilot Bond Grant Scheme, Silver Bonds and Green Bond

  1. Issue green bonds of totaling HK$66 billion in next five years.

  2. Issue inflation-linked retail bonds and Silver Bonds totaling not less than HK$13 billion.

Other new measures

(a) One-off measures:

  1. Waiving rates in respect of residential properties for 2020-21, subject to a ceiling of HK$1,500 per quarter.

  2. Provide an extra one month of Comprehensive Social Security Assistance payment, Old Age Allowance, Old Age Living Allowance and Disability Allowance (being extra one month in the previous year).

  3. Pay 1 month’s rent for lower income tenants living in public rental units.

  4. Pay examination fees for school candidates sitting for the 2021 Hong Kong Diploma of Secondary Education Examination.

  5. HK$10,000 cash payout to Hong Kong permanent residents aged 18 or above.

(b) Supporting enterprises:

  1. Introduce a concessionary low-interest loan with 100% Government guarantee for enterprises, which the application period of which will last for 6 months. Maximum loan of HK$2 million with repayment period up to 3 years. Moratorium on principal repayment for first 6 months.

  2. Waiving rates for non-domestic properties for 2020-21, subject to a ceiling of HK$5,000 per quarter in first two quarters; and HK$1,500 per quarter for remaining two quarters.

  3. Waive business registration fees for 2020/21.

  4. Waive registration fees for company annual returns for 2 years.

  5. Subsidise 75% of electricity charges for non-residential account for 4 extra months, subject to a monthly cap of HK$5,000.

  6. Waive 75% of water and sewage charges of non-domestic households for 4 extra months, subject to a monthly cap of HK$20,000 and HK$12,500 respectively.

  7. Provide rental subsidy of HK$100 million for local recycling enterprises for 6 months.

  8. Rental for Government properties / properties covered by short-term and temporary waivers of 50% reduction for 6 months.

  9. Waive 50% of reduction for another six months for eligible operators of properties covered by short-term waivers.

  10. Offering another six months of fees and rent reduction for cruise lines and existing tenants of the Cruise Terminal.

(c) Others:

  1. In response to the use of tax policy in the international community as a means of competition, the Organisation for Economic Co-operation and Development (OECD) is actively exploring the proposal of setting rules for imposing a global minimum tax rate. Under this proposal, if the tax paid by a multinational corporation in Hong Kong is lower than the new global minimum tax rate, its parent company will be subject to additional taxes or defensive measures imposed by the jurisdictions where they are located.

    The imposition of a global minimum tax rate may undermine the attractiveness of Hong Kong’s low tax policy to multinational corporations, thus posing challenges to the territorial-source-based tax regime. The proposal will also bring additional tax burden and compliance costs to multinational corporations, and affect their incentives for investing and operating in Hong Kong.

    The Government mentioned that they will continue to keep a close watch on the developments of the OECD’s work, make assessments and devise corresponding measures. This is to ensure that Hong Kong’s tax regime is not only in line with new developments in the international tax scene, but also helps us maintain the premier business environment and competitiveness of Hong Kong.


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This information is of a general nature only and is not intended to be relied upon, nor to be a substitute for, specific professional advice. No responsibility for loss arising from acting on or refraining from action as a result of any of this information can be accepted. No reader should act on the basis of this information without obtaining independent professional advice with regard to their particular circumstances.