General:

For 2008, GDP grew by 2.5%, lower than the trend growth rate over the past 10 years. As a result of the financial crisis, a decrease in GDP by 2-3% is forecast for 2009, which is the first negative growth since 1998.

Hong Kong export growth recorded an increase of only 2.0% in real terms, local private consumption expenditure grew only by 1.8%. Inflation was kept at 4.3%.

Unemployment rate will increase and inflation rate will ease to 1.6% in 2009.

A deficit of $4.9 billion in the Consolidated Account for 2008-09 is forecast, as compared with the original $7.5 billion deficit forecast this time last year for the same period. A consolidated budget deficit of $39.9 billion is forecast for 2009/10.

General issues:

The main theme of the budget is to preserve jobs: a provision of $1.6 billion to create 62 000 jobs and internship opportunities in the next three years has been proposed. Other issues include: to promote green economy, to speed up the implementation of the ten major infrastructure projects, to promote bond market development by implementing a program to issue government bonds, to promote the use of electric vehicles and extend the exemption of electric vehicles from first registration tax, to increase tobacco duty by 50%, to help implement the new senior secondary academic structure and so on.

Other tax perspectives:

To emphasis on agreements for the avoidance of double taxation with major economies to help improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world.

To liberalise the arrangements for the exchange of tax information.

To create a level playing field for Islamic financial products in relation to conventional ones, and make changes to or clarifications of the arrangements for stamp duty, profits tax and property tax.

Tax concessions:

1. to waive rates for the first two quarters of 2009-10 (last year budget: all quarters), subject to a ceiling of $1,500 per quarter ( last year budget: HK$ 5,000) for each rateable tenement;
2. to provide a 20 per cent rental reduction for most government properties and short term tenancies of government land for three months;
3. to freeze government fees and charges related to people's livelihood for one year; and
4. (4) to propose a one-off tax reduction of 50 per cent (2007/08: 75 per cent) of salaries tax and tax under personal assessment for 2008-09, subject to a ceiling of $6,000. (2007/08: HK$25,000) The reduction will be reflected in the taxpayer's final tax payable for 2008-09.

Please note for points 1 and 4, the amounts have been reduced when compared with last year.

In last year the tax reductions have been extended to profits and property taxes as well, with a maximum reduction rate of 75%, subject to a ceiling of HK$ 25,000. There are no further tax concessions to other areas, such as the tax bands and tax rates. In addition there will be no waiver of business registration fee for 2009/10.

In general:

In general, the budget is regarded as conservative. There is no match with those actions taken by USA and our mainland.

Jobs:

A provision of $1.6 billion to create 62 000 jobs and internship opportunities in the next three years have been proposed is welcomed. This will benefit many university graduates from the scheme. However many non university graduates may voice out why the scheme has not considered their interests as well, given that the university graduates are generally regarded as having a better future than those who have not.

Tax concessions:

The tax concessions are reduced, and the general public could not benefit much from these short-term sweeteners. There are comments that the tax concessions highlighted in last year’s budget should be carried forward so that more people could benefit.

Tax incentives and new tax measures:

Other than above, many professionals have urged the HKSAR to consider a number of tax incentives or concessions scheme, including the following issues:

1. to adopt loss carry back measures- this can help companies to use current tax loss to set off prior years’ assessable profits. This has the immediate results of getting the tax refund and to help the survival of small and medium sized enterprises (“SMEs”) during this tough season.
2. to adopt group relief- this allows the taxable profits generated by one group company to be offset by losses suffered by another company in the same group. This will reduce the overall taxes paid by the group companies.
3. to suspend to provisional tax payments system for some time, as least before the end of this financial tsunami -this has the effect of reducing the tax outflows of the tax payers.

All the above proposals are highly recommended, especially for the loss carry back and group relief measure. These can, in longer term, increase its market competitiveness of the HKSAR.

Comprehensive agreement on double taxation arrangements (“DTA”):

The budget has mentioned the importance of comprehensive agreement on double taxation arrangements (“DTA”), and exchange of tax information under such agreements. These are good news to the HKSAR. DTA will surely lessen the tax burden that the tax payers will suffer in other tax jurisdictions, and at the same time encourage more investments in Hong Kong.

The liberalization of tax information exchange will further enhance the implementation of these DTA.

However, when compared with nearby jurisdictions, the HKSAR is behind them. In order to increase its international competitiveness, more efforts have to be exerted in this direction.

Other tax issues:

The HKSAR has to introduce rules to clarify the issue on the source for profit, especially the trading profits. This will enhance the tax planning work for businesses, and indirectly attract investors to Hong Kong.

Other matters:

The issue of 50% increase in tax rate is welcomed by non-smokers and is expected to help reduce the public health expenditures. While raising the tax may see the effect in short term, longer term and consistent education in these areas should not be overlooked.

Conclusion:

The budget has brought in some short term measures to combat the effect of financial tsunami, albeit the measures are generally regarded as light and not heavy handed. In longer term, the HKSAR has more to be done to minimize the impact of this financial tsunami.

Tax rates summary:

There are no changes in the tax rates and the tax band. The figures are the same as last year.

Salaries Tax (2008/09 and 2009/10)

Rates of tax
First HK$40,000	2%
Next HK$40,000	7%
Next HK$40,000	12%
On the remainder	17%
Standard rate	15%

Personal allowances
Basic allowance	HK$108,000
Married person's allowance	HK$216,000
Child allowance
1st to 9th child (each)
Year of birth	HK$100,000
Other years	HK$50,000
Dependent parent / grandparent allowance
Aged 60 or above
not residing with taxpayer	HK$30,000
residing with taxpayer	HK$60,000
Aged 55 to 59
not residing with taxpayer	HK$15,000
residing with taxpayer	HK$30,000
Dependent brother / sister allowance (for whom no child allowance claimed)	HK$30,000
Single parent allowance	HK$108,000
Disabled dependant allowance (in addition to any allowances already granted for the disabled person)	HK$60,000

Deductions (maximum deduction for amount paid for):
Self-education expenses	HK$60,000
Home loan interest	HK$100,000
Elderly residential care expenses	HK$60,000
Contributions to recognised retirement schemes	HK$12,000
Charitable donations	35% of assessable income

Profits Tax(2008/09 and 2009/10)

Rates of tax
Companies	16.5%
Unincorporated businesses	15%

Plant and machinery
Initial allowance	Deduction rate
Prescribed fixed assets	100%
Environment-friendly machinery and equipment	100%
Other qualifying expenditure	60%
Annual allowance	Deduction rate
Depending on the tax written down value	10%, 20% or 30%

Industrial building allowance
	Allowance rate on qualifying expenditure
Initial allowance	20%
Annual allowance	4%

Commercial building allowance
	Allowance rate on qualifying expenditure
Annual allowance	4% until residue is reduced to Nil

Environment-friendly installations ancillary to buildings
	Allowance rate on qualifying expenditure
Annual allowance	20%

Refurbishment allowance
	Allowance rate on qualifying expenditure
Annual allowance	20%

Property Tax (2008/09 and 2009/10)

Property tax is charged on the owner of any land or buildings in Hong Kong at the standard rate (15%) on the net assessable value of such land or buildings.