KPMG recommends strategically utilizing fiscal reserves to support Hong Kong’s sustainable economic growth

Enhance competitiveness of tax system to attract emerging business and talent

20 February 2024

2 min read

20 February 2024, Hong Kong (SAR), China (“Hong Kong”) –KPMG believes the Government should introduce measures in its upcoming Budget to not only ensure a stable economy with sustainable growth, but also to prepare for potential challenges that may arise from various factors such as high interest rates, as it is anticipated that Hong Kong will continue to record a fiscal deficit for 2023-2024.

KPMG forecasts the Hong Kong Government will record a HKD 130 billion deficit for the fiscal year 2023/24, driven by reduced land related and stamp duty revenue. KPMG estimates the city's fiscal reserve to stand at HKD 705 billion by the end of March 2024. The Government should strategically utilize its fiscal reserves to bolster Hong Kong’s competitiveness and seize the emerging opportunities that lie ahead.

John Timpany, Head of Tax in Hong Kong, KPMG China, says:

The Government's financial situation remains healthy compared with many other jurisdictions. The Government is therefore still well positioned to make good use of its fiscal reserves to enhance Hong Kong’s competitiveness and seize opportunities in the medium to long run. For example, encouraging the establishment of more regional headquarters in Hong Kong will help to boost the local economy, strengthen the city’s global status and attract more high-quality talent.

The presence of regional headquarters in a city is an important factor in its role as an international financial centre to attract and grow local businesses. KPMG proposes adopting 50% of the standard tax rate for qualified profits derived from regional headquarters in Hong Kong, to help attract more global companies to set up here. KPMG also suggests introducing special tax loss relief to encourage taxpayers investing into start-ups and R&D.

As a part of the Greater Bay Area (GBA) initiative, KPMG suggests the Government could provide an accelerated tax depreciation allowance for fixed assets for set-ups in the Northern Metropolis. In order to boost R&D activities and the interchange of ideas within the GBA, as well as maintain the competitive edge of Hong Kong’s tax system, the Government could revisit the enhanced tax deduction for R&D expenses and extend it to cover R&D activities carried out in the GBA.

Alice Leung, Tax Partner, KPMG China, says:

The family office tax incentive announced last year was widely welcomed. We suggest enhanced measures, such as broadening the scope of qualifying transactions for tax concessions to include digital assets, antiques and art. By relaxing the conditions for Profits Tax exemption on incidental income arising from holding qualified assets under the funds and family office tax regimes (currently subject to a 5% threshold), Hong Kong could maintain its competitiveness in this fast-growing sector and strengthen the city’s status as Asia’s asset management hub.

Stanley Ho, Tax Partner, KPMG China, says:

Talent is crucial to maintain Hong Kong’s standing as a global city of business and finance. To ensure the city can attract and retain the best talent and emerging businesses, we recommend introducing a tax concession where share-based remuneration offered by strategic enterprises in Hong Kong to talent in the city would be exempt from Salaries Tax, and abolishing property cooling measures to encourage more people to make Hong Kong their home.

In terms of the measures to support local business and livelihood, KPMG recommends providing tax deductions for childcare and eligible families with domestic helpers. Working parents with children aged 16 or below or disabled dependents who are cared for by their grandparents can be provided with an allowance of HK$50,000. Additionally, KPMG suggests increasing the child allowance and implementing a 100% tax rebate, capped at HK$6,000, for Profits Tax, Salaries Tax, and tax under Personal Assessment.

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