EY comments on Hong Kong Budget 2023-24 — Hong Kong’s fiscal position and relief measures

Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “Based on the revised estimate announced in the Hong Kong Budget 2023-24 (the budget), the HKSAR Government (the Government) will record a budget deficit of HK$140 billion for the financial year 2022-23, which is close to the HK$135 billion of budget deficit that EY estimated.

“Under the backdrop of continued uncertainties in the global economic outlook and that Hong Kong is gradually emerging from the pandemic, we welcome the Financial Secretary’s (FS) balanced approach in directing its resources to relieve people’s hardship, stabilize the economy and maintain public confidence as announced.

“To boost market sentiment and stimulate local spending, the Government will continue to roll out another round of consumption vouchers. The electronic vouchers will be disbursed in two instalments with a reduced total value of HK$5,000 to each eligible Hong Kong permanent resident and new arrival aged 18 or above.”

EY considers this measure of a reduced amount of direct subsidy, given the latest fiscal position of the Government and the need to maintain an appropriate balance so that other areas can also be taken care of, as constructive and beneficial. Lee says: “We believe that this measure taken in light of the current circumstances should not impose a too heavy burden on Hong Kong’s long-term fiscal position.”

Lee also adds: “Besides, the Government has made adjustments to the value bands of the ad valorem stamp duty payable for the sale and purchase of properties. This move will ease the burden on Hong Kong families of purchasing their first residential properties, particularly small and medium residential units.”

Talent and labor force

Lee says: “The Government has proposed an array of initiatives to enrich the local talent pool and attract overseas talent for various industries, including the newly proposed Capital Investment Entrant Scheme. We believe that these initiatives can enable Hong Kong to meet the overall talent demand as our economy picks up its momentum.”

New international tax standards

In terms of BEPS 2.0 Pillar Two, the Government indicated that it would implement the 15% global minimum effective tax rate in accordance with international consensus to safeguard our taxing rights and maintain the competitiveness of our tax regime. Hong Kong plans to apply the global minimum effective tax rate on large multinational enterprise (MNE) groups and implement the domestic minimum top-up tax starting from 2025 onwards.

It is estimated that this will bring in tax revenue of about HK$15 billion per year for Hong Kong.

Increasing revenue

Paul Ho, Financial Services Tax Leader for Hong Kong at Ernst & Young Tax Services Limited says: “Given that the external economic conditions are still volatile and the Hong Kong economy will take time to recover emerging from the pandemic, we think it is appropriate for the Government not to amend the profits tax and salaries tax rates nor to impose any new taxes. The proposed imposition of an annual special football betting duty of HK$2.4 billion on the Hong Kong Jockey Club under the Betting Duty Ordinance for five years and the introduction of domestic minimum top‑up tax under BEPS 2.0 Pillar Two should provide the Government with new revenue streams in both the short term and long term to achieve fiscal balance.”

Strengthening Hong Kong as an international asset and wealth management center

Ho says: “The asset management industry continues to be a key industry for Hong Kong. It is very encouraging to see that the Government will review the existing tax concession measures applicable to funds and carried interest. We believe that this should further enhance our competitiveness as an international asset and wealth management hub. Hopefully, in the near future, we will see some favourable changes to the two concessionary regimes, in line with the industry’s expectations.”

Increasing tax certainty

Ho comments: “We are delighted to hear that the Government is putting forward an enhancement proposal shortly to provide clearer guidelines on whether onshore gains on disposal of equity interests are subject to tax. The initiative will not only provide more tax certainty on disposal of equity interests, but also lower the compliance cost of businesses, increase the competitiveness of Hong Kong's tax regime, and enhance the attractiveness of Hong Kong as an international investment and business hub.”

Encouraging infrastructure investment by the telecommunications industry

Wilson Cheng, Tax Leader for Hong Kong and Macau at Ernst & Young Tax Services Limited says: “Given the importance of advanced and more comprehensive telecommunications infrastructure in our economic development, we are very pleased to see that the Government has listened to the industry’s submission and proposed in the budget to allow tax deduction for the spectrum utilization fees to be paid by the future successful bidders of radio spectrum.”

Supporting our people and households

Robin Choi, People Advisory Services Partner at Ernst & Young Tax Services Limited, says: “We welcome the proposed increase of the basic child allowance and the additional child allowance for each child born during the year of assessment from the current HK$120,000 to HK$130,000 starting from the year of assessment 2023-24.

“Also, we are pleased to see that the Government has taken up our previous suggestion to focus on unleashing potential labour supply in an ageing population to replenish workforce. It would be a good start to propose an increase of the tax deduction for the Mandatory Provident Fund (MPF) voluntary contributions made by employers for their employees aged 65 or above, from the current 100% to 200% in respect of such expenditure. It will benefit both the employers by receiving an enhanced tax deduction and the employees by increasing their retirement savings.”

Read more on Hong Kong 2023-24 Budget insights.

-Ends-

Notes to Editors 

About EY

EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.

Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.

Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients, nor does it own or control any member firm or act as the headquarters of any member firm. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws. For more information about our organization, please visit ey.com.