Tuesday, December 05, 2006

Hong Kong Will Not Impose Sales Tax

In late July, I reported on news I read about in two columns, that the world's freest economy, Hong Kong planned to impose a consumption tax.

Fortunately, I now see that the Hong Kong government was forced to drop the idea after strong public opposition. Critics pointed out that it would hurt the economy, and reduce tourism. The Hong Kong finance minister Henry Tang still seems determined to "broaden the tax base", i.e. raise taxes for people with low and average income, but I have a feeling that attempts to apply income tax (Today only 35% of workers pay any income tax at all, and the top income tax is just 16%) on the under- and middle class will be as unpopular as the sales tax.

Tang displayed an amazing level of cluelessness when he said "Although the public understands that GST [General Sales Tax] can broaden our tax base, it is clear from the views collected that we have not been able to convince the majority to accept GST as the main option to address the tax base problem.". Tang don't seem to understand that the reason why a majority of the public in Hong Kong opposed the sales tax was precisely because it would "broaden the tax base", i.e. raise taxes for that majority.


Blogger Flavian said...

It is a little bit difficult to express what I think in English, but I will try my best.

A fundamental charecteristic of a laissez-faire is that there cannot be such things a free harbours or duty-free zones in a laissez-faire society.

At international airports products are sold duty-free, that is without VAT, duties or customs.

But a laissez-faire society is like a giant market place and because of that there can only be a moderate flat income tax, but no sales tax.

Sales taxes are sometimes prefered by free market liberals, but all objections against income tax in comparision tp sales tax are unvalid given that we talk a about a flat income tax.

In Hong Kong interest earnings and capital gains are not taxed at all.

Only wages, corporate profits and dividends are taxed. There are some taxes on luxury itms as well.

One interesting thing is that corporate profits are taxed at a higher rate than dividends, and that dividends paid to shareholders can be deducted when the corporate profit subject to taxation is calculated.

Comparing this with Estonia's supposedly growth-friendly tax system is interesting since the Estonian system is exactly the opposite to the Hong Kong system.

And by the way: Absence of sales tax is a characteric of all extremely prospeous economies like Dubai and Hong Kong.

5:39 PM  

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