Hong Kong weighs raising taxes on top earners for second year

HONG KONG – Hong Kong’s government is exploring options to raise taxes on the city’s highest earners for a second straight year to plug shortfalls in its budget, according to people familiar with the matter.

During a consultation with members of the public in recent weeks, Hong Kong’s officials floated the idea of raising the 16 per cent tax rate on the top income band of HK$5 million (S$878,000) or more, said the people, who asked not to be identified discussing private information.

Another option discussed was to include more people in the highest tax bracket by lowering the threshold, they added.

It was unclear if any concrete plans have been finalised or whether the government will proceed after the preliminary consultation, the people said.

“During the budget consultation process, we received diverse proposals from different sectors and members of the public,” a spokesperson from the Financial Secretary’s Office said. “We do not comment on individual proposals or speculations.”

Such a move, if realised, would follow a similar increase in 2024, when the top tax rate was unexpectedly raised for the first time in two decades.

The Asian financial hub is suffering deep deficits and is trying to recover from a talent drain, as the economy struggles to expand following the stringent Covid-19 pandemic years and political upheaval.

Wary of hampering the city’s competitiveness as a low tax market, officials have emphasised that they would target expenses as the main way of lowering the deficit. Still, they have also underscored that those making the most should also carry the heaviest burden.

“It is crucial to maintain Hong Kong’s competitive advantage of a simple and low tax system,” Financial Secretary Paul Chan said in a Jan 5 post on his blog.

“However, it is equally important to adhere to the principle that those who could afford should pay more, thus minimising the impact on ordinary members of the public.”

Mr Chan has been preparing the public for an austerity budget as he revised the deficit estimate to just south of HK$100 billion, drastically more than his initial count of HK$48.1 billion. The budget is set to be unveiled on Feb 26.

In 2024, Hong Kong introduced a two-tier tax system, with income of up to HK$5 million taxed at a maximum of 15 per cent and anything above levied at 16 per cent. The move affected about 12,000 people, or about 0.6 per cent of taxpayers. 

Even after the increase, Hong Kong’s income tax rates are attractive compared with many other financial centres including New York and London. In Singapore, the marginal personal income tax rate goes to as high as 24 per cent. 

The latest considerations came amid a nascent recovery in Hong Kong’s financial labour market after a bruising talent exodus in the pandemic years.

The city saw a net addition of about 830 financial professionals licensed with the Securities and Futures Commission in the four months to October 2024, according to a Bloomberg News analysis. That pushed the total licensees to a record as banks and asset managers bet on Hong Kong’s push to become the world’s biggest wealth management hub.

The government has been consulting the public on its coming budget since mid-December 2024 and it is mindful of the impact on the economy and community, Secretary for Financial Services and Treasury Christopher Hui told Bloomberg TV on Jan 13. 

When asked if the government needs to raise taxes on top earners or any sort, Mr Hui said the administration prioritises expense control while seeking ways to “raise income in a reasonable manner” to ensure a constant source of income. “After all, the government cannot print money,” he said. BLOOMBERG