'‘If it ain’t broke, don’t fix it’ or time for a holistic review and revamp of the tax system in Hong Kong?'

Abstract

Known as the ‘Jurassic Park in the Pearl River Delta’, the simple and low-rate tax system in Hong Kong has been said to be ‘troublingly successful’. Dated from the 1940s, the system has taken Hong Kong to become one of the flourishing economies in the post-war world. Originated from, and contained in, a common law tradition and framework, it is still running as an indispensable part of the Special Administrative Region despite the resumption of sovereignty over the place in 1997 by the civil-law People’s Republic of China ('PRC'). It has sustained from such challenges as brought by the global financial crisis and the Severe Acute Respiratory Syndrome (SARS) during the last two decades. Nothing comprehensive and substantive has happened to the system itself, albeit estate duty is being ‘suspended’ and hundreds of provisions have been added, in a rather piece-meal fashion, to the two major pieces of tax legislation in Hong Kong: the Inland Revenue Ordinance and the Stamp Duty Ordinance. Time seems always not right for any new tax initiatives, goods and services tax, vacancy tax and alike, to bear fruits. However, the local economic and social conditions underlying the original design of the system have changed over the years and will continue to change. In addition, the call for enhanced international tax cooperation, attributed mainly by the continuing growth of globalization, international trade and e-commerce, is getting loud. More recently have also seen the aftermaths of the domestic social unrest leading to changes in the demographics of Hong Kong, the subtle twists and turns in the PRC’s approaches towards it, and the unprecedented public health risks associated with COVID-19, causing impact on the economy and the society locally, regionally and internationally. All these are pushing the yet-to-broken tax system in Hong Kong to stretch necessity to its limits, urging for timely and visionary responses such that it will become more convergent with, rather than isolated and diverged from, its sovereign state and the international counterparts. This paper will give a more detailed account, setting the scene and arguing for a holistic review of the system to prepare and meet the challenges for now and beyond 2047, the initial ‘expiry’ date of the innovative notion of ‘one-country, two systems’. The paper will then sketch out the way forward to modernise the system in order to make it more fit for the defined purposes. It’d better ‘not have thy cloak to make when it begins to rain’!