1 / 25

Tax Reform?

Tax Reform?. Prof. Stephen Cheung Professor (Chair) of Finance City University of Hong Kong. Contents. Do we need a tax reform? How we can broaden the tax base? GST or other alternatives?. Concerns of Hong Kong Future Development. Narrow tax base Aging population

mgastelum
Download Presentation

Tax Reform?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Tax Reform? Prof. Stephen Cheung Professor (Chair) of Finance City University of Hong Kong

  2. Contents • Do we need a tax reform? • How we can broaden the tax base? • GST or other alternatives?

  3. Concerns of Hong Kong Future Development • Narrow tax base • Aging population • Economic growth is not sustainable • Increase the public expenditure

  4. Why Hong Kong Should Broaden the Tax Base? • Reliance on a few taxpayers • Salaries Tax • Working population: 3.4 million • No. of salaries taxpayers: 1.2 million (≈35%) • Contribution of the top 100,000 (≈3%) salaries taxpayers = 60% • Contribution of the top 500,000 (≈15%) salaries taxpayers = 95% Source: Broadening the Tax Base, Ensuring Our Future Prosperity Consultation Document

  5. Why Hong Kong Should Broaden the Tax Base? • Reliance on a few taxpayers • Profit Tax • No. of registered business: 750,000 • 60% of the total profit tax are paid by the top 800 companies (≈1%) Source: Broadening the Tax Base, Ensuring Our Future Prosperity Consultation Document

  6. Why Hong Kong Should Broaden the Tax Base? • Aging population • Life Expectancy at present • Male: 78.8 (No. 1 in the world) • Female: 84.4 (No. 2 in the world, after Japan) • Life Expectancy at birth in 2031 • Male: 82 • Female: 88 Sources: Health, Welfare and Food Bureau and IMF Working Paper (WP/06/87)

  7. Why Hong Kong Should Broaden the Tax Base? • Aging population • Fertility rate decrease • In the early 1970s ≈3.5 • In 2004 = 0.9 • % of persons aged 65 or above • In 1996 = 10% • In 2005 = 12% • In 2033 ≈ 27% • Working population decrease → Tax revenue reduce • Aging population increase → Medical and social welfare expenditure increase Source: Broadening the Tax Base, Ensuring Our Future Prosperity Consultation Document

  8. Life Expectancy at Birth, 2004 Source: IMF Working Paper (WP/06/87)

  9. Hong Kong Demographic Projections, 2005-45 Source: IMF Working Paper (WP/06/87)

  10. Old-Age Dependency Ratio Source: IMF Working Paper (WP/06/87)

  11. Why Hong Kong Should Broaden the Tax Base? • Expenditure on health care services • Expenditure on public health care services in 2004-05: 30.2 billion (14.4% of the recurrent public expenditure) • Every $100 received tax revenue → $22 was spent on public health care • Expenditure of Hospital Authority increase sharply • 1994-95: 14.5 billion • 2004-05: 27.8 billion Source: Building a Healthy Tomorrow – Discussion Paper on the Future Service Delivery Model for our Health Care System

  12. Why Hong Kong Should Broaden the Tax Base? • Expenditure on health care services • Aging population • 49% of bed days in public hospitals are occupied by the elderly (65 years old or above) • In 2005-06 • services of Hospital Authority are used on the services for elderly Sources: Health, Welfare and Food Bureau

  13. Why Hong Kong Should Broaden the Tax Base? • Expenditure on health care services • Over-reliance on the public health care system • Assume that there is no change in government policy, the Government would have to spend above $50 on health care services out of every $100 tax revenue collected by 2033 to provide the health care services currently provided Source: Building a Healthy Tomorrow – Discussion Paper on the Future Service Delivery Model for our Health Care System

  14. The Effects of Aging on Public Finance Scenario 1: Assumes that current labour market productivity is maintained, the private sector shares part of the aging-related health cost and the Mandatory Provident Fund becomes the growing source of financing retirement income by 2030. Scenario 2: Explore similar assumptions in scenario 1 but with higher labour productivity growth. Scenario 3: The extreme scenario. It assumes a significantly lower productivity growth than in scenario 1 and 2, combined with the unchanged policies scenario where the government would have to bear a large part of the aging related cost. Negative fiscal reserves after 2030 denote accumulation of government debt. Source: IMF Working Paper (WP/06/87)

  15. Good taxation system • Efficiency • Minimize compliance costs for taxpayers and administrative costs for government • Flexibility • Adapting to changes

  16. Good taxation system • Certainty and simplicity • Transparent • Easy to understand • Effectiveness • Revenue-productive

  17. Good taxation system • Fairness • Progressive tax • Neutrality • Individuals and business with the same ability-to-pay are taxed equally

  18. Good taxation system • Revenue stability • Less sensitive to economic cycle • Stable revenue for the government • International competitiveness • Attractive investment environment • Simple and efficient

  19. Tax Base Broadening Options • Increase salaries tax rate • Increase profit tax rate • Increase stamp duty on land property transaction • Reduction in personal allowances and concessionary deductions under salaries tax • Increase rates on tenements • Capital gains tax • Tax on interest

  20. Tax Base Broadening Options • Tax on dividends • Tax worldwide income of businesses and individuals • Land and sea departure tax • Payroll and social security taxes • Poll tax • General consumption tax • Taxes on mobile telephone services and signboards

  21. Revenue Yield* * As at 2000-01

  22. Revenue Yield* * As at 2000-01

  23. Revenue Yield* * As at 2000-01

  24. Conclusion • The Government is facing a structure fiscal problem • The general public understand the seriousness of the problem • People will object the option which affects their own interests • Rational discussion on the tax base broadening options

  25. ~ END ~

More Related