Hong Kong months behind in collecting taxes

Only about one-third of tax assessments for individuals in Hong Kong have been made as of Dec 31 last year.
Only about one-third of tax assessments for individuals in Hong Kong have been made as of Dec 31 last year.PHOTO: AFP

HONG KONG • Hong Kong is behind on its taxes.

Hundreds of thousands of residents are still waiting this month for their salary tax bills, which normally start to land in mailboxes in July. The hold-up is due to a legislative backlog linked to the anti-government protests that have gripped the Asian financial capital for the last seven months.

Only about one-third of tax assessments for individuals have been made as of Dec 31 last year, according to the city's Inland Revenue Department. The authorities are further along in collecting corporate taxes, having assessed 77 per cent of profit tax returns as of Dec 31, it said. Assessments are the tax bills and refund notices that residents and businesses receive after filling out their returns.

The number of salary tax assessments made for individuals represent 35 per cent of the corresponding figures from last year, according to the department. Salary and profit taxes account for about 37 per cent of the government's projected total revenue for 2019-2020.

Hong Kong's tax backlog highlights how the pro-democracy protests that have rocked the city for months have not only crippled the city's economy, but also put Hong Kong's reputation as a well-run, efficient city at risk.

A Bill to lower 2018-2019 taxes was being debated in the Legislative Council back in June last year before the body was suspended for three months amid the large-scale protests.

"This is a symptom of a bigger drop in efficiency we've seen in Hong Kong over most aspects of governing," said adjunct professor Willy Lam of the Centre for China Studies at the Chinese University of Hong Kong.

Dr Lam, who has not received his own tax assessment yet, said that "after seven months of protests, Hong Kong's Chief Executive and her administration have been demoralised". "They have to be extra careful before rolling out new policies."

Angered by Beijing's growing influence over the semi-autonomous city, including now-scrapped legislation that would have allowed extraditions to the mainland, demonstrators stormed Hong Kong's Legislative Council building on July 1 last year and inflicted HK$40 million (S$7 million) in damage.

 
 

The legislature did not reopen until October. The tax law passed the following month, and the revenue department said it began issuing its first batch of tax demand notes in December.

It was the first time the agency waited till so late in the year to issue the tax assessments, which are typically issued from July every year, government spokesman Alson Wong said.

Mr Antony Dapiran, a Hong Kong-based lawyer and author of City Of Protest: A Recent History Of Dissent In Hong Kong, said: "The government has collapsed over the last six months. It can't even get its act together to send out its tax bills on time."

The unrest has plunged Hong Kong into its first recession since the global financial crisis. Economists predict year-on-year declines will continue in the first two quarters of this year, with the tourism and retail sectors suffering steep drops. Unemployment is rising, with the jobless rate for the food and beverage sector at its highest level in more than eight years.

The city is expected to face its first budget deficit since the early 2000s thanks to increased government spending on things such as police overtime and relief measures. Meanwhile, tax receipts will be lower because retail sales, tourism and other sectors are down. Delays in receiving tax payments could exacerbate the existing shortfall.

"In making the projection for tax revenue, this factor will be taken into consideration," said government spokesman Ivy Choui of the factor of delays in receiving tax payments.

She did not say when the agency would finish sending out the tax bills, but that some assessments might not be due until the next fiscal year beginning on April 1. Payment due dates are set at least six weeks from the issue dates of the demand notices, she said.

 
 

The tax delays are affecting residents such as Ms Clementine Demange, who lives in Hong Kong with her husband and 17-month-old toddler and works in banking. She moved to Hong Kong from France six years ago and has prized the city's efficiency and ease.

The overdue assessments have made it hard for her family to plan how much money to put aside.

"I was all the more frustrated because I needed my tax assessment to finalise an investment in France that's now delayed," she said. "Given the tense social environment, we totally understood that there could be delays. It's just unfortunate that we badly needed our tax assessment this year."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 17, 2020, with the headline 'HK months behind in collecting taxes'. Print Edition | Subscribe