Accounting body CPA Australia's local branch called for lower profit tax rates on small and medium-sized enterprises (SMEs) operating in the city due to the cost pressures exerted by the introduction of a minimum wage in May.

According to its own survey, CPA Australia said that 78 percent of respondents thought it necessary to reduce corporate profit taxes.

It also asserted that the proposal would not lead to a narrowing of the local tax base as the government has the option of investing in the future by using its huge surplus to position Hong Kong as the region's number one destination to locate regional corporate headquarters.

CPA Australia predicted the government's fiscal surplus could reach HK$85 billion in fiscal year 2011-2012.

CPA Australia interviewed 431 respondents, including senior accountants and financial professionals working in financial services, insurance and legal sectors in order to solicit their views towards the governments's upcoming 2011-2012 budget. The survey interviewed respondents for their views on various taxation measures that can relieve individual taxpayer burdens as well as enhance business competitiveness.

Approximately 78 percent of the interviewees said that the government should alleviate the taxation burden of local SMEs by lowering the corporate tax rate from its current 16.5 percent to 13.5 percent. Additionally, about 63.6 percent of the interviewees in the interviews worried that the launch of the minimum wage will be detrimental to SMEs.

"If the taxation burden of the local SMEs can be abated, then it can alleviate the cost pressures exerted on SMEs due to the introduction of the minimum wage this May," said Sarah McGrath, deputy chairperson of the CPA Australia Taxation Committee at Thursday's press conference.

To bolster the long-term economic development of the city, CPA Australia also proposed a reduction in the profits tax from 16.5 percent to 10 percent for multinationals that establish their regional headquarters in Hong Kong for the first five years. Respondents cited high rental costs, pollution and high living costs as the three main barriers preventing multinationals from relocating their operations to Hong Kong.

"We do not think the profits tax reduction for local SMEs and multinationals will further narrow our tax base because the current profits tax rate for corporations is still maintained at 16.5 percent. As the government is accumulating a huge fiscal surplus, we think it can capitalize on this to foster long-term economic growth by attracting more multinational investment in the city," McGrath noted.

According to the government's latest estimates, there are 280,000 SMEs in the city which employ more than 1.2 million people or about 34 percent of the workforce.

Meanwhile, CPA Australia also proposed that the government should levy even more stringent measures to curb excessive property speculation.

It suggested that a special stamp duty of up to as much as 30 percent should be charged on property owners who try to profit on their purchases by reselling within six months or less. It also proposed taxing the gains made on sales of properties other than the owner's principal residence within two years of purchase.

The Hong Kong government unveiled tough measures in mid-November to clamp down on short-term property speculation by introducing a prohibitive stamp duty as high as 15 percent of the sale price to penalize property owners who resell their properties within six months of purchase.

China Daily

(HK Edition 02/18/2011 page2)