How to improve Hong Kong's tax system

Check out Ernst & Young proposals.

According to Ernst & Young, when standing for the Chief Executive election early this year, one of the economic policies proposed by Mr. C.Y. Leung was to establish an inter-departmental agency on economic development.

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It was further proposed that the agency be led by the Chief Executive with a view to coordinating the efforts of various government departments to formulate long-term development strategies and industry policies.

Ernst & Young looks forward to the establishment of such an agency and hopes that it would devise appropriate tax incentives for targeted industries in order to attract investment to Hong Kong.

In addition, Ernst & Young proposes the following measures in order to promote the development of innovation and technology industries and to improve the quality of our human capital: (i) allow a super tax deduction of 200% for qualifying research and development expenditure for projects not qualifying for rebates under the “R&D Cash Rebate Scheme”; and (ii) allow a super tax deduction of 150% for employee training costs paid to accredited training providers.

Furthermore, we would like to urge the government to consider setting up a tax policy unit to conduct a comprehensive and in-depth review of our tax laws. The last time such a comprehensive review was done was 36 years ago.

Given the passage of time and the tremendous changes which have taken place in the manner in which businesses operate, including substantial changes in accounting rules governing how the results of business transactions are reflected in financial accounts, we consider that conducting a comprehensive review now would help enhance the competitiveness of our tax system.

We would also urge the government to direct more resources toward seeking to negotiate comprehensive double tax treaties with other jurisdictions, since having a wide tax treaty network would also further enhance the competitiveness of our tax system.

In addition, a review of how the provisions contained in tax treaties interact with domestic tax laws should also be undertaken.