【2017 Policy Address】Hong Kong proposes tax relief to SMEs
Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor said the government proposes to half profits tax rate for the first $2 million profits of companies to 8.25 percent, with an aim to provide a tax relief to small and medium-sized enterprises (SMEs).
The new tax is even lower than the proposed rate of 10% previously recommended in the Chief Executive’s Election Manifesto.
Dr. Daniel Ho, associate professor from Department of Accountancy and Law, Hong Kong Baptist University, contended that the taxation refine proposed by Carrie Lam in the first policy address beyond his expectation as the suggested rate is below the previous proposed rate.
But profits above $2 million will continue to be subjected to the standard tax rate of 16.5 percent, Lam said at her first policy speech.
However, Kenneth Leung Kai-cheong, member of the legislative council , questioned that the profit tax rate deduction may not include partnership or sole proprietorship, which means some SMEs, especially some start-ups, may not be benefited.
Ensuring that the tax deduction will merely benefit small and medium enterprises, the government will restrict the lower tax rate benefit to one enterprise nominated by each conglomerate.
Ho believed the measure can prevent enterprises from tax avoidance by setting subsidiaries efficiently. He also expected that the government will deliver more and specific restrictions later.
The Chief Executive also proposed that company can enjoy a 300 percent tax reduction on the first $2 million eligible research and development expenditure, while a 200 percent on the remainder.
Although the government aimed at encouraging IT industry, Kenneth Leung reckoned the definition of research and development expenditure is too narrow. He doubted how will the government define the expenditure as "eligible".
Also, he commented the tax deduction is not a suitable way to support the start-up, as most of them do not generate profit at the early stage.
He saw the most effective way to support the start-up is injecting capital, instead tof tax deduction.
《The Young Financial Post 新報人財經》