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Are you getting your slice of the “generous” tax measures as outlined in the 2018/2019 Hong Kong Budget?
1 Mar 2018
With a forecast budget surplus of HK$138 billion for 2017/2018 (cf. HK$92.8 billion for 2016/2017), Financial Secretary Paul Chan Mo-po introduced tax measures for both businesses and individuals which are relatively more generous comparing to those of last year but can you enjoy the “candies” of the Budget? We set out two hypothetical scenarios in this article to illustrate how much you can save.
Key Tax Measures
- reducing profits tax, salaries tax and tax under personal assessment by 75% for the Year of Assessment (“YoA”) 2017/2018 subject to a cap of HK$30,000 (cf. HK$20,000 for YoA 2016/2017).
- waiving government rates for four quarters of 2018/2019 subject to a cap of HK$2,500 per quarter (cf. HK$1,000 per quarter for YoA 2017/2018).
- expanding the tax bands for salaries tax as detailed below:-
| Current tax bands and tax rates for YoA 2017/2018 | Proposed tax bands and tax rates for YoA 2018/2019 | ||||
| Chargeable Income (HK$) | Marginal Tax Rate | Chargeable Income (HK$) | Marginal Tax Rate | ||
| First | $45,000 | 2% | First | $50,000 | 2% |
| Next | $45,000 | 7% | Next | $50,000 | 6% |
| Next | $45,000 | 12% | Next | $50,000 | 10% |
| Next | $50,000 | 14% | |||
| Remainder | 17% | Remainder | 17% | ||
| Standard Rate: 15% | Standard Rate: 15% | ||||
Increasing the tax allowances / allowable deductions as detailed below:-
| Allowances/ allowable deductions | Current amount for YoA 2017/2018(HK$) | Proposed amount for YoA 2018/2019(HK$) |
| Child Allowance | $100,000 | $120,000 |
| Additional Child Allowance (for child born during the year) | $100,000 | $120,000 |
|
Dependent Parent or Grandparent Allowance- |
||
| $23,000 | $25,000 | |
| $46,000 | $50,000 | |
| Additional Dependent Parent or Grandparent Allowance- Aged between 55 to 59- Aged 60 or above |
||
| $23,000 | $25,000 | |
| $46,000 | $50,000 | |
| Cap for the Elderly Residential Care Expenses | $92,000 | $100,000 |
| Personal Disability Allowance | N/A | $75,000 |
| Cap for the premium of the Voluntary Health Insurance Scheme [1] | N/A | $8,000 |
Are the tax measures really generous?
Illustration example 1
A single person with total income of HK$800,000 would have a tax saving of HK$4,500.
| YoA 2017/2018 (HK$) | YoA 2018/2019 (HK$) | |
| Assessable income | $800,000 | $800,000 |
| Less allowances: | ||
| – Basic | ($132,000) | ($132,000) |
| Net Chargeable Income | $668,000 | $668,000 |
|
$100,060 | $95,560 |
|
$120,000 | $120,000 |
| Final tax liability (lower of (i) and (ii)) | $100,060 | $95,560 |
| Less reduction on salaries tax | $30,000 | $30,000 [2] |
| Final tax payable | $70,060 | $65,560(saving $4,500) |
Illustration example 2
A couple with only one of them working earning HK$1,000,000 in total, with one dependent child (both in other year) and one dependent parent above age 60 not residing with them would have a tax saving of HK$8,580.
| YoA 2017/2018 (HK$) | YoA 2018/2019 (HK$) | |
| Assessable income | $1,000,000 | $1,000,000 |
| Less allowances: | ||
| – Married Person | ($264,000) | ($264,000) |
| – Child | ($100,000) | ($120,000) |
| – Dependent Parent | ($46,000) | ($50,000) |
| Net Chargeable Income | $590,000 | $566,000 |
|
$86,800 | $78,220 |
|
$150,000 | $150,000 |
| Final tax liability (lower of (i) and (ii)) | $86,800 | $78,220 |
| Less reduction on salaries tax | $30,000 | $30,000 [3] |
| Final tax payable | $56,800 | $48,220(saving $8,580) |
Our Observations
1. The maximum tax saving arising by an individual taxpayer from the changes in the tax bands and the marginal tax rates would be HK$4,500 as illustrated below:-
| Total chargeable income (HK$) | Total Tax liability under current law (HK$) | Total Tax liability under proposed law (HK$) | Aggregate Tax Saving (HK$) |
| $50,000 | $1,250 | $1,000 | $250 |
| $100,000 | $4,750 | $4,000 | $750 |
| $150,000 | $12,000 | $9,000 | $3,000 |
| $200,000 | $20,500 | $16,000 | $4,500 |
2. Higher income individuals (except those being taxed at the flat standard rate) will benefit more from the expansion of the tax bands and the increase in the various allowances / deductions.
3. As the flat standard rate remains unchanged, high income earners who are taxed at the flat standard rate would merely benefit from the reduction on salaries tax of HK$30,000.
4. As a comparison, currently the personal tax rates in Singapore range from 0% to 22% and income above SG$320,000 (approximately HK$1.89 million) would be subject to the top marginal tax rate of 22%. As the personal tax rates of Hong Kong taxpayers would be capped at the flat standard rate of 15% (without taking into account of the allowances / deductions available in both tax jurisdictions), personal tax rates in Hong Kong for high income earners are more preferential than that in Singapore.
For a detailed discussion or any enquiry, please contact one of our members of the Tax Advisory team.
OLN has tax advisors who have dual qualification in both accounting and law. We are happy to assist on any tax-related matter.
[1] Pending for the implementation of the Voluntary Health Insurance Scheme.
[2] Assuming that the same reduction on salaries tax would also be available for in the YoA 2018/2019.
[3] Assuming that the same reduction on salaries tax would also be available for in the YoA 2018/2019.
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