2021/22 Hong Kong budget highlights

On 24 February 2021, the Financial Secretary, Mr Paul Chan, delivered his fifth Budget Speech, in which forecasted a record high deficit for 2020/21. Estimated government revenue is HKD 29 billion lower than the original estimate, mainly due to the lower-than-expected revenue from land premiums caused by deferment of the disposal timetable of a high-value commercial site in the year. Estimated government expenditure, on the other hand, is HKD 89.3 billion higher than the original estimate, resulting in a deficit of HKD 257.6 billion for 2020/21.

The year ahead continues to be challenging and difficult, and a deficit of HKD 101.6 billion is envisaged.

Highlights of the business tax measures to support enterprises, revive and stimulate the economy, as well as tax policy, are summarised as follows:

Overcoming the epidemic

Support enterprises

Extend the application period of 100% guarantee low-interest loans for enterprises to the end of December 2021, raise the loan ceiling to HKD 6 million, extend the repayment period and duration of the principal moratorium.
Continue to grant 75% rental/fee concession for eligible Government properties/short-term tenancies and waivers for six months, starting from April 2021.
Grant 100% concession for eligible Government properties/short-term tenancies closed at the Government’s request.

Revive the economy

Issue HKD 5,000 electronic consumption vouchers in instalments to each eligible Hong Kong permanent resident and new arrival aged 18 or above to facilitate and stimulate local consumption.
Allocate HKD 375 million to the Hong Kong Trade Development Council to enhance its capability to organise online activities and to proceed with digitalisation.
Earmark HKD 765 million to support the Hong Kong Tourism Board in reviving the tourism industry.

Stimulating the economy

Encourage real estate investment trust (REIT) listings in Hong Kong by subsidising 70% of the relevant expenses paid to local professional service providers, subject to a cap of HKD 8 million per REIT.
Launch a Pilot Insurance-linked Securities Grant Scheme to subsidise issue costs.
Create new legal framework to allow foreign investment funds to re-domicile to Hong Kong for registration as open-ended fund companies (OFCs) or limited partnership funds (LPFs), with legislative proposals to be tabled in the second quarter of this year.
Encourage OFCs setup in or re-domiciliation to Hong Kong by subsidising 70% of the relevant expenses paid to local professional service providers, subject to a cap of HKD 1 million per OFC.
Attract family office business by undertaking to review relevant tax arrangements.

Innovation and technology

Inject HKD 9.5 billion into the Innovation and Technology Fund by two yearly instalments.
Commence progressively the operation of the first batch of about 20 research and development laboratories under the ‘InnoHK Research Clusters’ in the first quarter of this year.
Consider the Hong Kong Monetary Authority’s Fintech Supervisory Sandbox to reduce time for launching innovative financial products in the market.

Air Cargo Sector

Explore measures to facilitate trans-shipment through Hong Kong, to maintain Hong Kong’s competitive edge as an international air cargo hub.

Tax policy

Keep profits tax and salaries tax rates unchanged for the time being, but hint adjustments at an appropriate time.
Confirm that Hong Kong will actively implement the OECD’s BEPS 2.0 proposals which are targeted at large multinational companies, and undertake to minimise the impact on local small and medium-sized enterprises (SMEs) where possible.

Our comments

While we understand the difficulties faced by the Government, SMEs may be disappointed at the proposed Budget, which hands out less favourable short-term relief measures.
We would also like to see the Government’s active consideration of our suggestions on various tax reliefs, such as deductions for rental payments, and for SMEs, tax loss carried-back (please refer to our 2021-22 Budget Proposals).
As regards tax policy development, taxpayers will welcome more transparency on the Government’s forward-looking work plans on how Hong Kong is going to implement BEPS 2.0 and broaden Hong Kong’s tax base.

Agnes Cheung
agnescheung@bdo.com.hk