HK cutting taxes to shore up financial centre status

Oct 11, 2007 - Hong Kong's government will cut income and corporate taxes by one percentage point to help protect the city's position as an Asian financial centre in its high-stakes race with Singapore.

Salaries tax will be cut to 15 per cent and profits tax to 16.5 per cent in 2008-2009, chief executive Donald Tsang said in his annual policy address yesterday, his first since being elected to a five-year term in March.

The reduction will widen the gap with Singapore, which in February announced a cut in its corporate tax rate to 18 per cent from 20 per cent to lure more financial-services and technology companies. Singapore's top income tax rate is currently 20 per cent.

Mr Tsang had pledged in his election campaign to cut the standard rate of salaries tax and profit tax to 15 per cent within five years.

'We will consider further profits tax relief if our economy remains robust and our public finances stay sound,' Mr Tsang said yesterday.

Hong Kong's corporate tax rate is currently 17.5 per cent, while its salaries tax is 16 per cent. The city's economy in the three months ended June 30 climbed 6.9 per cent from a year earlier after gaining a revised 5.7 per cent in the previous quarter.

Mr Tsang, who has said that his long-term goal is to preserve Hong Kong's status as Asia's top financial centre, also said that the government plans 10 major infrastructure projects in the next five years that will create 250,000 jobs and add HK$100 billion (S$18.9 billion) to the economy annually.

The plans include building an expressway linking Hong Kong with the southern Chinese cities of Guangzhou and Shenzhen, Mr Tsang said. Financing arrangements for a bridge linking Zhuhai city with Hong Kong and Macau are also being finalised, he added.

The city will also spend HK$20 billion to complete a direct road link between Shenzhen and Hong Kong's airport.

Traffic growth at Hong Kong's port, the world's second busiest container port last year, has slowed because of competition from mainland ports.

The Hong Kong government also plans to build a new rail line in southern Hong Kong Island. The line, which will cost more than HK$7 billion, is scheduled to begin operations before 2015.

Mr Tsang said that the city may also start building a line linking Shatin in the New Territories to Central, the downtown business district, in 2010.

In addition, Mr Tsang said that rates for property owners totalling some HK$2.6 billion would be waived for the final quarter of the fiscal year.