GST looms in Hong Kong

New tax will pay for huge number of public housing being built.

Hong Kong’s push to make more affordable housing available is straining its finances and it could drive the city into the red, said accounting firm KPMG China. And a solution to this looming deficit would be to institute a Goods and Services Tax that was roundly opposed when last proposed in 2006.

KPMG said the government’s housing push could lead to a deficit of HK$45.9 billion in 2013 if the government doesn’t raise taxes. Hong Kong currently has a HK$40 billion surplus.

Analysts said a new GST could range from 3% to 5%. The alternative would be to raise individual income takes, a move certain to trigger widespread opposition as it did in 2006.

In 2006, the government argued that because Hong Kong's tax base was narrow, a single-rate GST was a viable option in order to broaden the tax base and secure the sustainability of the tax revenues base and the capacity to meet public expenditure needs in the long run. The government wanted a 5% GST in 2006.

The government last month said it will provide over 75,000 flats by increasing the number of public rental housing units by expediting supply by 2017 and 2018 by seeking new land and rezoning.