Option to raise taxes of high earners explored

The government is exploring options to raise taxes on the highest earners for the second straight year to plug shortfalls in its budget, according to sources.

Officials have floated the idea of raising the 16 percent tax rate on the top income band of HK$5 million or more, sources said. Another option would be to include more people in the highest tax bracket by lowering the threshold, they added.

It is unclear whether any concrete plans have been finalized or the government will proceed after the preliminary consultation.

"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.

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

Wary of hampering the city's competitiveness as a low-tax market, officials have primarily targeted expenses as the main way of lowering the deficit.

"It is crucial to maintain Hong Kong's competitive advantage of a simple and low tax system," Financial Secretary Paul Chan Mo-po wrote on his blog. "However, it is equally important to adhere to the principle that those who can afford it should pay more, thus minimizing the impact on ordinary members of the public."

Chan has been preparing the public for an austerity budget as he revised up the deficit estimate to just under HK$100 billion, drastically more from the initial count of HK$48.1 billion.

The budget is set to be unveiled on February 26.

Last year, Hong Kong introduced a two-tier tax system, with incomes of up to HK$5 million taxed at a maximum of 15 percent and anything above that levied at 16 percent.

The move affected about 12,000 people or about 0.6 percent of taxpayers, raising HK$910 million in revenue.

Even after the increase, Hong Kong's tax rates are attractive compared to other major financial centers such as New York and London. In Singapore, the marginal personal income tax rate goes as high as 24 percent.

The public is being consulted on the budget as the government is mindful about its impact on the economy and community, Secretary for Financial Services and the Treasury Christopher Hui said.

When asked about potential tax raises, Hui said the administration has prioritized expense control while seeking ways to "raise income in a reasonable manner."

He added: "After all, the government cannot print money."

BLOOMBERG