Bloomberg News

Hong Kong’s Tsang Says Rising Risks Mean Tax-Cut Is ‘Hard’

January 03, 2012

(Updates with comments from business school dean in fourth and ninth paragraphs.)

Jan. 3 (Bloomberg) -- Hong Kong Chief Executive Donald Tsang said that rising economic risks make it difficult to fulfil his 2007 pledge to further cut corporate taxes before his term expires in six months.

“It’s hard to meet my vow to cut corporate tax,” Tsang said in comments broadcast by Commercial Radio Hong Kong today. “After the global financial crisis, we may see the emergence of a worldwide recession. So it’s hard to have room to do such a thing right now.”

Reducing levies could restore Hong Kong’s edge against regional rivals such as Singapore as pollution and waiting lists at international schools make the city less attractive to international companies. Singapore narrowed the corporate tax rate gap with Hong Kong to 50 basis points in 2010 from 10 percentage points in 1999 to attract global businesses.

“It’s understandable that he prefers to keep things unchanged, as the government sees the looming risk of an economic downturn,” said Raymond So, dean of the business school at Hang Seng Management College in Hong Kong.

Tsang’s term ends June 30. Singapore today reported its second economic contraction in three quarters, highlighting the pressure that a global slowdown is putting on small Asian economies exposed to international trade and capital flows.

Pollution, Schools

In Singapore, which typically announces its budget in February, the government is yet to indicate any plans for further reductions in corporate taxes. Hong Kong cut taxes for companies by half a percentage point to 16.5 percent in 2008 to fend off the threat from Singapore. Tsang had pledged to bring the rate to 15 percent.

Hong Kong’s schools have failed to keep up with record numbers of applications. In a survey of American Chamber of Commerce members in May, 63 percent said some executives are driven away by the lack of student places.

The city’s air pollution is linked to thousands of avoidable deaths, the University of Hong Kong said last year, with many due to respiratory and cardiovascular disease, according to Thach Thuan-quoc, an honorary assistant professor.

“Some international companies may opt for Singapore over Hong Kong because of pollution and education concerns, but Hong Kong still has an edge in its proximity to China,” said So, of the management college.

In June last year, Tsang said “You got me on that,” when asked in a Bloomberg Television interview about his tax-cut pledge. “I’m still trying to find the opportunity” to meet the promise, Tsang said then in Melbourne. “At the moment, the Hong Kong people feel we should not reduce corporate profits tax and while it was feasible and acceptable in 2007, it is not acceptable now.”

--Editors: Paul Panckhurst, Sunil Jagtiani

To contact the reporters on this story: Marco Lui in Hong Kong at mlui11@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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