Hong Kong recently announced record-breaking fiscal surplus of 138 billion HKD from the 2017-18 fiscal year. This is mostly thanks to high revenue from profits tax, land sales, stamp duties and salaries tax. Last year was indeed exceptional for the Asia's world city, as its economy grew by 3.8% and unemployment rate reached a 20-year low of 2.9%.

The Financial Secretary proposed in his budget speech to share with the community about 40% of the surplus and use the remaining 60% for improving government services and investment in the future.

Seven industries will be funded and promoted in particular:

  1. Innovation and Technology industry will receive a funding of 50 billion HKD with a focus on areas that the government considers pillar industries: biotechnology, artificial intelligence, smart city and fintech. The projects that will benefit in particular include Hong Kong – Shenzhen Innovation & Technology Park, Innovation & Technology Fund and research clusters for healthcare, AI and robotics and e-sports.
  2. Financial services will be allocated 500 million HKD, that will go to bond subsidies for first time bond issuers, new green bond program, etc.
  3. Trading & Logistics will receive 5 billion HKD, dedicated to expansion of trade, investment and treaty network, as well as redeveloping Air Mail Centre at the Hong Kong International Airport.
  4. Tourism, and especially educational tourism, will receive 600 million HKD.
  5. Business & professional services were allocated 1.7 billion HKD, intended to boost SME's competitiveness and assist local companies to grasp opportunities from the Belt & Road and Greater Bay Area Initiatives.
  6. Construction industry will receive 1 billion HKD.
  7. Creative industry (such as design startups) will get funding of 1 billion HKD.

A number of tax measures has also been proposed, the most significant ones that draw public attention are:

  1. One-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2017/18 by 75% to a maximum of 30,000 HKD.
  2. Tax concessions under profits tax: Introduce a 300% tax deduction for the first 2 million HKD qualifying research & development expenditure and a 200% deduction for the remainder. Full tax deduction in the first year of capital expenditure incurred by enterprises in procuring eligible efficient building installations and renewable energy devices instead of over a period of five consecutive years.
  3. Adjustment of tax bands and marginal tax rates for salaries tax. Tax bands will be widened to 50,000 HKD from 45,000 HKD and the number of tax bands increased from 4 to 5 with marginal tax rates of 2%, 6%, 10%, 14% and 17%.
  4. Increase in child and dependent parent/grandparent allowances and introduction of a personal disability allowance for salaries tax.
  5. Extension of the current waiver of the first registration tax for electric commercial vehicles until end of March 2021.

Recurrent expenditures on healthcare, education and land resources will also be increased.

Contributed by: Anastasia Shchetinina, of Masson de Morfontaine, E: anastasia@masson-de-morfontaine.com W: www.masson-de-morfontaine.com