2022 budget shows commitment to revive economy: PwC

The budget includes extensive COVID-19 measures and tax reforms.

The proposed 2022 budget is a testament to the government's commitment to revive Hong Kong’s economy, PwC said, adding that the immediate and longer-term measures outlined in the proposal not only addresses the current challenges brought by the pandemic but also paves the way for the city’s recovery.

Amongst the important measures included in the budget are the extension of various anti-epidemic measures like the electronic consumption vouchers which will be raised to $10,000 from $5,000 last year.

“We believe that this will again boost consumer sentiment and encourage spending in the local retail industry, moderately cushioning the impact on Hong Kong's retail sector by the current epidemic wave, whilst the overall administrative cost involved is expected to be relatively lower this year, with the infrastructure already in place after last year’s introduction,” PwC said.

Another highlight of the budget is the proposed tax concessions for eligible family investment management entities managed by single-family offices, as well as the half-tax concession for maritime enterprises that aims to attract these businesses to establish a presence in Hong Kong.

Meanwhile, PwC said the government should also consider putting in place measures that will allow privately offered funds investing in fixed income and credit strategies, including bond funds and private credit funds, to “enjoy unified profits tax exemption for funds under the current regime.”

Doing so will “enable the sustained growth and development of the Hong Kong bond market and the asset management industry as a whole,” according to the analyst.

“Whilst the introduction of a progressive rating system for domestic properties will undoubtedly increase the annual rates of certain property owners, this is not expected to have a wide impact on property owners since the affected properties amount to only around 2% as per government estimate. This measure, on the other hand, will provide the government with an additional revenue stream in the long run based on the 'affordable users pay' principle,” PwC added.

Here are PwC’s insights on other measures proposed by the government:

On the proposed tax deduction for domestic rental expenses:

“[It will] ease the financial burden of individuals renting domestic properties. The deduction ceiling of $100,000 per year is in line with the home loan interest currently allowed for individual property owners. Whilst this is a good start, we hope that the government will revisit the relief amount from time to time given the continued upward pressure on property prices and rents.”

On barring landlords from terminating tenancy vs SMEs from specific sectors:

“[It] should help resolve the pressing need of affected businesses to a certain extent. Whilst the relevant legislation needs to be implemented expeditiously, careful consideration of the details will be required to ensure that the measure will benefit the specific targets without causing unintended issues for the counterparties.”

On the proposed international tax reform under the OECD’s BEPS 2.0 initiative:

“The government plans to start the legislative process in the second half of 2022 with respect to the implementation of a global minimum effective tax rate of 15% for large multinational enterprises (MNEs) by 2023. They will also consider introducing a domestic minimum top-up tax with regard to these MNEs starting from 2024/25. Meanwhile, Hong Kong will continue to maintain a simple tax system including the territorial source principle in order to minimise the impact on SMEs. We hope that the government will maintain effective communication with affected MNEs to understand their practical concerns in designing a simplified and effective administrative process to alleviate compliance burden.”

On deploying additional resources to upskill and attract talent from outside HK:

PwC said the measure will “ensure a sustainable development of Hong Kong’s economy.”

“We encourage the government to commit and act on the execution of its proposals to foster economic growth and job creation and attract talent. Specifically, it is critical how quickly and effectively such measures can be put into implementation for immediate and robust impact,” the analyst added.

Meanwhile, looking at the revised estimated surplus of $18.9b for 2021/22, PwC said the city “can return to the right track once the epidemic situation is under control.”