HKICPA submits proposals for the Government budget to enhance Hong Kong’s global competitiveness and long-term resilience

Today, the Hong Kong Institute of Certified Public Accountants (HKICPA) announces its proposals for the Government’s budget for the 2025-26 fiscal year under the theme “Building a sustainable future – fiscal stability, and economic and social development”. The HKICPA’s budget proposals include a wide range of proposed measures under four main themes, covering driving economic growth and stimulating investment, attracting and retaining talent, sustaining public finances, and sustainable development, to help Hong Kong start a new chapter and cement its position as one of the best places in the world to live, work and visit.

HKICPA estimates that the fiscal deficit for 2024-25 will be around HK$97 billion, which is in line with the updated forecast by the Financial Secretary in early January, but double the original forecast, as a result of lower land sales in the fiscal year and slower economic growth than originally expected. This is expected to result in a drop in the fiscal reserves to the equivalent of around 10 months of government expenditure. However, the HKICPA’s view is that, given Hong Kong’s overall financial strength, with more than HK$4 trillion of assets in the Exchange Fund managed by the Hong Kong Monetary Authority (which also includes the fiscal reserves), the relatively low deficit to GDP ratio, which, in 2023, was around 3.3%, a real GDP growth forecast of 2.5%, and modest consumer price inflation rate of under 2%, in 2024, Hong Kong’s current financial position should be seen as sound and relatively stable. At the same time, these figures represent a snapshot, so we cannot afford to be complacent and must monitor the situation carefully and actively, to ensure that it does not deteriorate significantly.

Edward Au, President of HKICPA said: “In spite of the various ongoing challenges and uncertainties due to geopolitical tensions and the global economic and interest rate outlook, we acknowledge the Government’s strenuous efforts to improve the economy, by adapting to changing global dynamics and enhancing local competitiveness. As a result, Hong Kong’s economy has continued to expand at a moderate pace and attained near full employment in the past year.”

“Hong Kong has proven itself to be able to face such challenges in the past and has been able to emerge financially stronger and more resilient. There is every reason to believe that we can do so again, with prudent fiscal management and continuing measures to boost our competitiveness, our international image and the development of the local economy.”

Sustaining public finances

Hong Kong faced a budget deficit of just over HK$100 billion in the financial year 2023-24 and, in his latest estimate, the Financial Secretary expects a similar deficit in the current financial year. This highlights the need to enhance government revenues and control public expenditure, particularly recurrent expenditure which amounted to over 90% of revenues in the 2024-25 estimates.

Increasing government revenue

HKICPA continues to call for a more extensive review of Hong Kong’s tax system with the aim of enhancing certainty and competitiveness, and exploring options to provide sufficient, stable revenues for the city’s future development. The HKICPA also suggests some specific ways of raising additional revenue in the short to medium term. These include introducing an infrastructure toll on all private and public ground transportation entering specified Hong Kong control points. An infrastructure toll could help support infrastructure development as well as the related manpower costs in Hong Kong. In addition, HKICPA believes that there is scope for a further limited increase in the higher-tier standard rate for salaries tax and tax under personal assessment, from 16% to 16.5%, and to increase the stamp duty on leases of residential property. These measures could help bring in additional revenue without having a significant impact on the most disadvantaged in the community. The HKICPA notes that the implementation of the Global Anti-Base Erosion Model (“GloBE”) Rules and introduction of a domestic “top-up tax”, in Hong Kong, which will apply a minimum tax rate to large multinational corporations operating here, will also bring in additional revenue. In the 2023-24 budget, the Financial Secretary estimated this to be around HK$15 billion. The HKICPA is calling for an update to this figure to make Hong Kong’s overall fiscal position clearer.       

Optimize public expenditure

HKICPA supports the Government's efforts to control public expenditure and save costs in the current financially-constrained environment, including the 1% expenditure cut for two consecutive years under the fiscal consolidation programme. Meanwhile, HKICPA recommends reviewing government spending to identify areas where costs can be reduced through streamlining operations and increasing automation, where feasible. Public spending should prioritize areas likely to benefit the community and drive growth, such as housing, healthcare, education, welfare and digitalization. For funding the major infrastructure developments, in addition to issuing bonds, the Government should consider opportunities for public-private partnerships, and, potentially, some expansion of toll systems, as a means of recovering the cost of public funding. To evaluate the appropriateness and effectiveness of different financing methods, detailed consideration and in-depth analyses should be conducted.

Driving economic growth and attracting investment to Hong Kong

HKICPA believes that there is a pressing need for Hong Kong to reinforce its traditional competitive advantages, including a business-friendly environment, wealth of experience as a “super connector”, and its long-standing reputation as Asia’s leading international financial centre.

Adjustments to profits tax regime and support for RHQ economy

HKICPA proposes a series of measures to support Hong Kong’s business-friendly environment and attract more investment. These include reviewing the two-tier profits tax rate regime with a view to adjusting the rate downwards or raising the threshold of HK$2 million to, e.g., HK$4 million for small and medium-sized enterprises (“SMEs”)); fostering the development of a regional headquarters (“RHQ”) economy with a 50% profits tax concession (i.e. a tax rate at 8.25%) for relevant profits derived by qualifying RHQs; and subsidizing consultancy and legal fees for companies proposing to re-domicile to Hong Kong.

The HKICPA’s proposals also encompass several other measures to support SMEs and startups, among others, including support for the digitalization of SMEs.

Stimulate R&D and I&T activities

To strengthen the city’s innovation economy, HKICPA recommends that the Government work with different sectors to promote and advocate the new “patent box” regime to businesses, and conduct a holistic review of the tax incentive regime for research and development (“R&D”), innovation and technology (“I&T”) and intellectual property (“IP”)-related business. Non-tax incentives, such as financial subsidies, should also be explored to encourage more local R&D activities.

Adapt to changes in global tax system

The Government should continue to expand Hong Kong’s network of comprehensive avoidance of double taxation agreements, particularly with Hong Kong’s key and emerging trading partners, says HKICPA. Generally, there is a need for more proactive engagement with stakeholders and taxpayers on proposed major tax law changes and sufficient transition time should be allowed for taxpayers to get prepared for any changes. The Government should, for example, provide suitable guidance and support to taxpayers, after the implementation of the GloBE Rules.

Reinvigorate Hong Kong’s branding

Given the increasing convenience of cross-boundary travel and the impact of Hong Kong’s relatively higher cost base, HKICPA suggests setting up a task force to address the challenges encountered by local retail, food and beverage, and tourism sectors. Also, efforts should be made to identify what defines and distinguishes the unique “Brand HK”, and to promote and leverage on our strengths, as well as reassessing Hong Kong’s tourism strategies, and examining collaborations with other Greater Bay Area (“GBA”) cities, to promote multi-city tours and experiences for overseas tourists. In addition, HKICPA proposes providing more support for the sports and entertainment sectors through various tax and non-tax incentives, and leveraging on Hong Kong’s Olympic and post-Olympic successes to foster a more physically active community and further develop the city’s sports culture.

Eugene Yeung, the chair of HKICPA’s Taxation Faculty Executive Committee, explains, “We believe that it is essential to continue solidify Hong Kong’s position as the preferred destination for international investors and travellers in the face of keen regional competition. We should offer more extensive support for the R&D, I&T and IP sectors and also aim to revitalize the local retail and tourism economy. These are strategic areas that offer growth opportunities and are instrumental in ensuring Hong Kong’s prosperity.”

Support for the property market and home buyers

As a temporary measure, HKICPA suggests allowing property buyers to elect to stage the payment of the stamp duty on the purchase of self-use residential property, in equal annual instalments, over three years. This could help alleviate the immediate financial burden on buyers without affecting the Government’s revenue overall.

Attracting, developing and retaining talent in Hong Kong

Hong Kong continues to face strong global competition for talent. While the Institute welcomes the various talent schemes introduced by the Government, the results of which have been very promising, it suggests additional measures to supplement these and to retain and develop talent. To attract talent and encourage overseas talent to stay in Hong Kong in the long-term, HKICPA suggests providing time-limited subsidies or tax concessions to targeted industries facing a talent gap, simplifying visa application procedures, opening a green channel for GBA and foreign students to come to Hong Kong for internships during peak work seasons, and providing a private education allowance for the children of overseas talent, whose needs cannot be met in the local school system.

Upskill the workforce

To retain talent within the workforce and encourage more childbirth, HKICPA suggests doubling the personal allowances under salaries tax of parents with newborn babies, for the first two years, and doubling the basic allowances for healthy, skilled retirees of 65 years and above, also for two years, to encourage them to return to the workforce. Other proposals relate to encouraging employers to adopt more flexible, family-friendly work policies and practices, such as supporting working from home and hybrid working, where feasible. 

In view of the changing market dynamics, Hong Kong must continue to upskill its workforce. To nurture talent in key areas, including R&D, I&T, sustainability and green finance, HKICPA recommends partially subsidizing the costs incurred by companies that wish to invite international experts to provide training for their Hong Kong R&D staff, and extending or regularizing the Pilot Green and Sustainable Finance Capacity Building Support Scheme, to build up the local green and sustainable finance talent pool.

“Talent is crucial for the sustainable growth of Hong Kong. The Government is committed to transforming Hong Kong into an international hub for high-calibre talent and has introduced policy measures to support this vision. We believe Hong Kong is on the right track and we suggest some additional initiatives to reinforce these policy measures and help achieve even greater success,” said Agnes Cheung, deputy chair of the Taxation Faculty Executive Committee, HKICPA.

Alleviate citizens’ cost of living

The HKICPA suggests a range of measures to alleviate the cost of living, providing greater support to the workforce and the wider community. Measures include a tax reduction of 100%, subject to a ceiling of HK$6,000, on salaries and profits tax for 2024-25; a rates concession for properties with a rateable value of up to HK$200,000, or lower band properties under the new progressive rates system, owned by natural persons, for three quarters, subject to a ceiling of HK$1,200 per quarter; and considering expanding the scope of “qualifying tenancies” eligible for the rental deduction under salaries tax to cover rental of a serviced apartment by means of a licence; also suggested is increasing the tax deduction for voluntary contributions to mandatory provident funds and qualifying annuity premiums, to HK$80,000.

Building a sustainable future

HKICPA fully supports the Government’s ongoing efforts to achieve carbon neutrality by 2050 and strengthen Hong Kong’s position as a leading green finance hub. To support this objective, the HKICPA puts forward several proposals relating to sustainable development, green building certification, new energy transport and recycling, among others.    

Encourage early adoption of HKFRS Sustainability Disclosure Standards

Following the publication by the Government of the Roadmap on Sustainability Disclosure in Hong Kong, and the issuance by the HKICPA of the HKFRS Sustainability Disclosure Standards (HKFRS SDS), HKICPA recommends that the Government encourage large “publicly accountable entities” to take on early adoption of the HKFRS SDS voluntarily, by offering enhanced tax deductions on the relevant qualifying expenditures, to facilitate the development of a comprehensive sustainability disclosure ecosystem in Hong Kong.

To download the full budget proposal “Building a sustainable future – fiscal stability, and economic and social development”, please scan:

Photo:

^{Caption: Edward Au, President of the HKICPA (Centre), Eugene Yeung, Chair of Taxation Faculty Executive Committee of HKICPA (Left) and Agnes Cheung, Deputy Chair of Taxation Faculty Executive Committee of HKICPA (Right) presented the HKICPA’s 2025-26 Budget Proposals “Building a sustainable future – fiscal stability, and economic and social development”, which includes a range of recommendations under four key themes.}