HONG KONG — An accounting group has recommended that Hong Kong implement a 3 percent tax on luxury goods such as Rolex watches, Louis Vuitton bags and Cartier jewelry to generate a fresh revenue stream for the city.
The recommendation, which came earlier this week, just days before members of the Hong Kong government met to present the year’s budget, was one of several from CPA Australia, a professional group representing thousands of certified practicing accountants. The group conducted a survey earlier this month, polling 189 finance, accounting and business professionals in Hong Kong.
A luxury tax would help to broaden the city’s tax base and could raise an additional 1.5 billion Hong Kong dollars, or $193 million, in new revenue from annual luxury sales of at least 50 billion Hong Kong dollars, or $6.4 billion, according to CPA Australia. The group, which has 7,000 members in Hong Kong, submitted its proposal to Hong Kong’s financial secretary on Monday and recommends that the government start a commission to look into the recommendations.
Accounting firms regularly give recommendations to the Hong Kong government before the annual budget meeting, as do other organizations. Only some recommendations gain traction to spark discussion within the government. Judging from Wednesday’s budget discussions, the Hong Kong government, which is expected to have a surplus of 83 billion Hong Kong dollars to 85 billion Hong Kong dollars ($10.7 billion to $10.9 billion) for the 2012 fiscal year, currently appears to be moving toward tax incentives rather than increases.
Hong Kong has long been a shopping haven for Mainland Chinese, who are drawn to the city’s low tax rates as well as better quality and selection of goods. Luxury goods in China are generally 30 percent more expensive than in Hong Kong thanks to stiff tariffs and taxes.
“Hong Kong is a low tax jurisdiction and we don’t want to disturb that,” said Sarah McGrath, deputy chairperson of the Taxation Committee of CPA Australia — Greater China. She went on to explain that Hong Kong faces many challenges, such as an aging population, and increased competition from overseas. “The key thing is how do we maintain our competitive edge and maintain a balanced budget. We need to look at broadening the tax base,” she said.
The group’s other recommendations included lowering the city’s profits tax for small and medium-sized enterprises and the appointment of an independent commission to conduct Hong Kong’s first comprehensive tax review since 1976.
Unveiling the annual budget for the last time as Hong Kong financial secretary, John Tsang Chun-wah said Wednesday he expects Hong Kong’s gross domestic product growth to slow to between 1 percent and 3 percent this year, down from 5 percent in 2011, due to the sluggish global economy. To stimulate the local economy, Tsang introduced a raft of tax cuts as well as initiatives to support small and medium-sized businesses. Combined, the measures would cost the Hong Kong government nearly 80 billion Hong Kong dollars, or $10.3 billion.
CPA Australia’s luxury tax recommendation isn’t the first time for a sales tax proposal in Hong Kong. Henry Tang Ying-yen, Hong Kong’s former financial secretary and now a candidate for Hong Kong chief executive, pushed such a tax back in 2006, before abruptly withdrawing the unpopular idea. The proposal sparked fierce opposition and was hotly debated by lawmakers and the general public. Accounting firm Ernst & Young also proposed such a tax several years ago, as have other accounting firms in the past.