Hong Kong should offer tax benefits to cross-border e-commerce platforms to attract such businesses and look at reviewing the civil service as ways to boost the economy, accounting firm Deloitte has suggested ahead of upcoming budget announcements.
Deloitte makes recommendations for Hong Kong’s upcoming Budget on January 21, 2025. Photo: Supplied.
Deloitte on Tuesday made recommendations for Hong Kong’s upcoming Budget, including improving the business environment for e-commerce platforms, attracting rich Chinese to set up family offices, and maintaining the city’s low tax regimes.
The Budget, scheduled to be delivered on February 26, is expected to concentrate on cost-cutting measures amid a sustained fiscal deficit. Financial Secretary Paul Chan earlier predicted the deficit for the current financial year would be “below HK$100 billion,” after two consecutive years of recording shortfalls over HK$100 billion.
Deloitte recommended Hong Kong offer a “safe haven” for cross-border e-commerce platforms to lure such businesses to set up headquarters or regional centres in the city.
It suggested that if cross-border e-commerce platforms voluntarily reported their income in Hong Kong, 50 per cent of their profits would be designated as “offshore source” and thereby not subject to local taxation.
Under Hong Kong profit tax rules, only profits sourced in the city are subject to taxation.
Deloitte said the tax benefits would reduce uncertainty over taxation for international e-commerce businesses, while also increasing government income.
Finance chief Paul Chan. Photo: Kyle Lam/HKFP.
The firm also recommended implementing a “close-looped” system to attract rich Chinese people to transfer their assets to Hong Kong for investment.
Chinese nationals are subject to an annual US$50,000 cross-border transfer ceiling, including to Hong Kong.
Speaking in a press conference on Monday, Roy Phan, a tax partner of Deloitte China, said some of the accounting firm’s mainland Chinese clients had wanted to invest in the Hong Kong market, according to broadcaster TVB.
“If there is a channel or a system that could allow their money into Hong Kong for investment, it will be an incentive for them to set up family offices and invest in the Hong Kong market,” Phan said in Cantonese.
Deloitte recommended setting up a pilot scheme in the Greater Bay Area that would allow families or individuals to transfer an approved amount of renminbi to Hong Kong, adding that their investment gains could be reinvested in the city.
Speaking in the same event, Polly Wan, Deloitte China’s lead partner of the Hong Kong budget team, said the government could consider streamlining its civil service instead of cutting government employees’ pay.
“The government has quite a lot of vacancies currently. Apart from pay cut, would it be possible to first review the civil service establishment?” Wan said.
Finance chief Chan earlier said that the government would rely on cutting costs to balance its books, while finding new revenue sources was “not a top priority.”
Hong Kong logged a fiscal deficit of HK$122 billion in the financial year of 2022/23, and HK$101.6 billion in the last financial year.
