Goods and Services Tax
70. In so far as our existing public finances are concerned, expenditure is rigid and revenue, which is subject to economic fluctuations, is unstable. Land premiums and investment income are very important, yet volatile, revenue items. As a share of government revenue over the past ten years, the former has fluctuated between 3 and 28 per cent, and the latter between 0.5 and 18 per cent. Our salaries tax and profits tax, which are the major streams of recurrent revenue, are paid by a minority of residents and enterprises, and such taxes are highly sensitive to economic fluctuations. The problems arising from our narrow tax base are abundantly clear. The existing structure of government revenue is less than healthy. We need revenue items which are less sensitive to the ups and downs of economic cycles to offset the volatility of the others. Widespread experience overseas has demonstrated that a Goods and Services Tax (GST) can achieve this purpose. I believe that it is the civic responsibility of Hong Kong people to contribute an affordable amount of tax.
71. During the past two years or so since I became Financial Secretary, members of the community have periodically engaged themselves in discussions on GST, and have expressed their views to me. I can appreciate the concerns some may have. In working out the details of GST, I will follow the principle of maintaining our low and simple tax regime. The Government will consult the public on the detailed proposals. We intend, inter alia, to provide tax refunds to visitors and allow importers to defer payment so as to relieve pressures on their cash flow. To reduce the erosion of people purchasing power, we will also propose relief and compensatory measures, including an increase in the level of CSSA payments and reduction of other taxes.
72. As regards timing, we will launch the public consultation in the middle of this year. It will last about nine months in order to allow sufficient time for the public to express their considered views. After the conclusion of the consultation period, we will prepare a report and submit our proposals for consideration by the Government of the next term. From making a decision to introduce GST to its actual implementation will take about three years. I hope the community can take the opportunity of the consultation period to have a rational discussion of the Government proposals.
