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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 2018/19 Financial Budget Summary

The Financial Secretary, Mr Paul Chan Mo-po, presented his second budget for the year 2018/19 to the Legislative Council on 28 February 2018. 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 3.8% in 2017. The Government forecasts real GDP growth of 3% - 4% and nominal GDP growth of 5.5% - 6.5% in the 2018 year.

The headline inflation rate for 2017 as a whole was 1.5% while the underlying inflation rate was 1.7% in 2017. The Government forecasts that the headline inflation rate for 2018 to be 2.2% with an underlying inflation rate at 2.5%.

The economic indicators are summarized as follows:

 
2017
2018 (Forecast)
2019-2022 Medium range forecast
Growth Domestic Product (GDP) Growth in real terms
3.8%
3 - 4%
3% per annum
Underlying inflation rate
1.7%
2.5%
2.5% per annum


The unemployment rate remained low in year 2017, averaging at 3.1% for the year as a whole.

The 2017-18 revised estimate on government revenue is HK$612.4 billion, being 20.6% or HK$104.7 billion higher than the original estimate. This is due mainly to the much higher-than-expected revenues from land premium and stamp duties. As for government expenditure, the Government forecasts a revised estimate of HK$474.4 billion, being HK$17 billion lower than the original estimate. For 2017-18, the Government now forecasts a surplus of HK$138 billion, and by 31 March 2018, fiscal reserves are expected to reach HK$1,092 billion while the Housing Reserve will reach HK$78.8 billion.

Total government revenue for 2018-19 is estimated to be HK$604.5 billion. The government estimates that overall expenditure for 2018-19 will be HK$557.9 billion, and recurrent expenditure accounts for HK$406.5 billion. The government forecasts a surplus of HK$46.6 billion in the Consolidated Account in the coming year, and fiscal reserves are estimated to be HK$1,138.6 billion by end of March 2019.

We summarize the 2018/19 budget highlights as follows:-

Highlights of the Budget

In the 2018/19 budget, the following are proposed:

Salaries tax and tax under personal assessment

Salaries tax and tax under personal assessment for 2017/18 will be reduced by 75%, subject to a ceiling of HK$30,000 (compared to the one-off tax reduction ceiling of HK$20,000 in the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2017/18.

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:

 
2017/18 (Present)
 
From 2018/19 and onward (Proposed)
Tax Band
Net chargeable income
Tax Band
Net chargeable income
First HK$45,000 at
2%
First HK$50,000 at
2%
Next HK$45,000 at
7%
Next HK$50,000 at
6%
Next HK$45,000 at
12%
Next HK$50,000 at
10%
On the remainder at
17%
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.

The marginal tax bands regarding the progressive tax rates for salaries tax purpose will be widened from the current HK$45,000 to HK$50,000 commencing from the year of assessment 2018/19 (see above table). In addition, it is proposed to increase the number of tax bands from four to five with marginal tax rates of 2%, 6%, 10%, 14% and 17% commencing from the year of assessment 2018/19 (see above table).

Per the Budget, there is no change in the standard tax rate. 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 2018/19 year of assessment (and the current personal allowances and deductions) are summarized in the below table. Note that the Government proposes to introduce a personal disability allowance commencing from the year of assessment 2018/19.

Allowances and Deductions
2017/18
(Existing)
HK$
2018/19
(Proposed)

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 200,000 240,000
    - Other years 100,000 120,000
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 46,000 50,000
    - residing with taxpayer
  throughout the year
92,000 100,000
  Aged 55 to 59    
    - not residing with taxpayer OR 23,000 25,000
    - residing with taxpayer
  throughout the year
46,000 50,000
Disabled dependent 75,000 75,000
Dependent brother/sister 37,500 37,500
Personal disability allowance (NEW allowance) Not applicable 75,000
Deductions: 2017/18
(Current)

Maximum deduction HK$
2018/19
(Proposed)

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
92,000 100,000
  - Contributions to recognised
  retirement schemes
18,000 18,000

As noted above, the Financial Secretary proposes to:
(i)
Increase the basic and additional child allowances from the current HK$100,000 to HK$120,000 per child.
(ii)
Increase the allowance for maintaining a dependent parent or grandparent aged 60 or above from the current HK$46,000 to HK$50,000. The same increase will also apply to the additional allowance for taxpayers residing with parents or grandparents continuously throughout the year.
(iii)
Increase the allowance for maintaining a dependent parent or grandparent aged between 55 to 59 from the current HK$23,000 to HK$25,000. The same increase applies to the additional allowance for taxpayers residing with parents or grandparents continuously throughout the year.
(iv)
Raise the deduction ceiling for elderly residential care expenses from the current HK$92,000 to HK$100,000 for taxpayers whose parents or grandparents are admitted to residential care homes.
(v)
Introduce a personal disability allowance for eligible taxpayers, at a rate on par with the current disabled dependent allowance of HK$75,000.
Proposed tax deduction of qualified premium under the voluntary health insurance scheme

The Financial Secretary proposed to introduce a tax deduction of qualified premium for eligible health insurance products under the Voluntary Health Insurance Scheme. The annual tax ceiling of premium for tax deduction is HK$8,000 per insured person. The Government hopes that the measure will be implemented from the following year of assessment.


Relaxes the election requirement regarding personal assessment

At present, if both the husband and wife have income assessable to tax and wish to elect for personal assessment, they must jointly make an election. The Government proposes to relax the requirement for the election of personal assessment commencing from the year of assessment 2018/19 by allowing married persons the option to elect personal assessment separately.


Profits Tax

Profits tax for 2017/18 will be reduced by 75% subject to a ceiling of HK$30,000 per case (compared to the one-off tax reduction ceiling of HK$20,000 in the previous year). The reduction will be reflected in the final tax payable for the year of assessment 2017/18.

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$30,000 for 2017/18 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.

First registration tax for electric vehicles

The Government has decided to continue to waive in full the first registration tax (“FRT”) for electric commercial vehicles, electric motor cycles and electric motor tricycles until 31 March 2021.

As for electric private cars, the Government in hoping to encourage car owners to go for electric vehicles as far as possible, stated that apart from continuing with the current FRT concession of up to HK$97,500, the Government will launch a “one-for-one replacement” scheme from today to allow eligible private car owners who buy a new electric private car and scrap an eligible private car they own to enjoy a higher FRT concession of up to HK$250,000. The above concession will remain in force until 31 March 2021.


Other tax related proposals and tax highlights

The Government mentioned the following:
(a)
On profits tax, the Government will amend the qualifying debt instrument scheme to increase the types of qualified instruments. In addition to instruments lodged and cleared by the Central Moneymarkets Unit of the Hong Kong Monetary Authority, debt securities listed on the Hong Kong Stock Exchange will also become eligible.
(b)
The Government will extend the scope of tax exemption from debt instruments with an original maturity of not less than seven years to instruments of any duration. Hong Kong investors will therefore enjoy tax concession for interest income and trading profits derived from a more diverse range of debt instruments.
(c)
The Government will enhance tax concessions for capital expenditure incurred by enterprises in procuring eligible efficient building installations and renewable energy devices by allowing tax deduction to be claimed in full on one year instead of the current time frame of five years.
(d)
It is expected that the regime for open-ended fund companies to be used as a fund vehicle and the relevant tax exemption arrangements can commence operation later this year.
(e)
The Government will review the existing tax concession arrangements applicable to the fund industry with regard to international requirements on tax co-operation. The Government will also examine the feasibility of introducing a limited partnership regime for private equity funds and the related tax arrangements.
(f)
The Government will amend the Inland Revenue Ordinance to extend the coverage of profits tax concession to specified treasury services provided by qualifying corporate treasury centres to all their onshore associated corporations.

New measures to support small and medium enterprises (“SMEs”)

The measures catering for the SMEs include the following:
(a)
Inject HK$1.5 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund).
(b)
Inject HK$1 billion into the SME Export Marketing and Development Funds.
(c)
Extend the geographical scope of the Enterprise Support Programme under the BUD Fund from the Mainland to include the ASEAN countries. The respective cumulative funding ceiling for enterprises undertaking projects in the Mainland and ASEAN markets will be HK$1 million.
(d)
Increase the cumulative funding ceiling for enterprises under the SME Export Marketing Fund from HK$200,000 to HK$400,000, and removing the existing condition on the use of the last HK$50,000 of grants.
(e)
Extend the application period for the special concessionary measures under the SME Financing Guarantee Scheme to 28 February 2019.
(f)
In the five financial years from 2018/19, provide a total of HK$250 million additional funding to the Hong Kong Trade Development Council for assisting local enterprises (SMEs in particular) in seizing opportunities arising from the Belt and Road Initiative and the Bay Area development, promoting the development of e-commerce, and enhancing Hong Kong’s role as a premier international convention, exhibition and sourcing centre.

Pilot Bond Grant Scheme, Silver Bonds and Green Bond

The Government proposes to launch a three-year Pilot Bond Grant Scheme to attract local, Mainland and overseas enterprises to issue bonds in Hong Kong. The amount of grant for each bond issuance is equivalent to half of the issue expenses, capped at HK$2.5 million. Each enterprise can apply for a grant for two bond issuances at most.

The issuance of Silver Bonds will be continued in 2018 and 2019, targeting Hong Kong residents aged 65 or above.

In addition, the Government proposes to launch a green bond issuance programme with a borrowing ceiling of HK$100 billion. The sums borrowed will be credited to the Capital Works Reserve Fund to provide funding for green public works projects of the Government.



Other new measures
 
(a)
One-off measures:

(1)
Waive rates for all four quarters of 2018/19, subject to a ceiling of HK$2,500 per quarter for each rateable property (compared to HK$1,000 per quarter for each rateable property in the previous year).

(2)
Provide an extra two months of Comprehensive Social Security Assistance payment, Old Age Allowance, Old Age Living Allowance and Disability Allowance (i.e. being one month more than that in the previous year).

(3)
Provide a one-off grant of HK$2,000 to each student in need to support learning.

(4)
Pay the examination fees for candidates sitting for the 2019 Hong Kong Diploma of Secondary Education Examination.

(b)
Others:

(5)
Public housing production for the next five years is estimated to be about 100,000 units, of which about 75,000 are public rental housing units and about 25,000 are subsidized sale flats.

The 2018-19 Land Sale Programme comprises a total of 27 residential sites capable of providing about 15,200 residential units.

(6)
The Government will set aside HK$1 billion to subside the costs of restoration works of eligible projects regarding vacant government sites or school premises to be made available for use by non-governmental organisations through short-term tenancies.

(7)
To improve the existing public healthcare services, the Government has stated that the expenditure on public healthcare services will increase to HK$71.2 billion (i.e. increase by 13.3%) in 2018/19. The Government will allocate additional recurrent funding of nearly HK$6 billion to the Hospital Authority in 2018/19 and allocate HK$200 million to enhance the healthcare professional training.

The Government will provide an one-off additional HK$1,000 worth of elderly health care vouchers.

(8)
Regarding the area of innovation and technology, the Government will (a) set aside HK$20 billion for the first phase of the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop, (b) inject HK$10 billion into the Innovation and Technology Fund to support applied research and development, (c) inject HK$10 billion for the establishment of two research clusters on healthcare technologies and on artificial intelligence and robotics technologies, (d) allocate HK$10 billion to upgrade facilities of the Science Park and enhance support for enterprises in the Science Park; as well as allocate HK$200 million to Cyberport to enhance support for start-ups, and another HK$100 million to develop e-sports.

(9)
To support tourism, the Government will (a) allocate HK$226 million for the Hong Kong Tourism Board to implement the Development Blueprint for Hong Kong’s Tourism industry, (b) allocate HK$310 million to support Ocean Park in development education and tourism projects and (c) allocate HK$30 million for enhancing the Pilot Information Technology Development Matching Fund Scheme for travel agents.

(10)
Regarding education, the Government will (a) provide an additional HK$2 billion recurrent expenditure to strengthen support for teachers, kindergartens, integrated education and life-wide learning, and (b) allocate HK$2.5 billion for the Matching Grant Scheme to support the publicly-funded post-secondary institutions.

(11)
To effect the abolition of the MPF “offsetting” arrangement, the Government has indicated its financial commitment and will set aside HK$15 billion for such measures.

(12)
The Government will allocate a total of about HK$220 million to strengthen care for children and disadvantaged youths.



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Kitty Yip   (852) 2110 5282   Kitty.Yip@hic.com.hk