Steven Sieker, Partner, Josephine Chuk, Tax Advisor, and Noam Noked, Associate, Baker & McKenzie (Hong Kong)
On 9 July 2015, the Hong Kong Legislative Council passed an amendment to the Inland Revenue Ordinance that gives effect to two major tax reliefs proposed in the 2015–2016 Budget. The first is a one-off reduction of salaries tax, tax under personal assessment and profits tax for the year of assessment 2014/15 by up to HK$20,000 per case. The second is an increase of the child allowance by HK$30,000 for each child.
One-off reduction of salaries tax, tax under personal assessment and profit tax
Salaries tax, tax under personal assessment and profits tax for the year of assessment 2014/15 will be reduced by 75 percent, subject to a ceiling of HK$20,000. The one-off tax reduction will be reflected in the taxpayers’ final tax payable for the year of assessment 2014/15 and application for the tax reduction is not required.
Increase of the child allowance
The amendment increases the child allowance under salaries tax and tax under personal assessment from the current HK$70,000 to HK$100,000 for each child. The additional one-off child allowance in the year of birth is also increased from the current HK$70,000 to HK$100,000 for each child. The increases will take effect from the year of assessment 2015/16 onwards. The IRD will apply the enhanced basic and additional child allowance, if applicable, when calculating the provisional tax for the year of assessment 2015/16.
Financial and economic implications of this amendment
It is estimated that the increases in child allowances will involve $2 billion a year as revenue forgone. As for the one-off reduction of salaries tax, tax under personal assessment and profits tax for the year of assessment 2014/15, the estimated one-off revenue forgone is $17.7 billion.
The Hong Kong Government expects that these tax reliefs will help relieve the financial burden of taxpayers in general and families with children in particular, and possibly generate some mild stimulus to consumer spending. The one-off reduction of profits tax will allow enterprises, especially small and medium ones, to have more disposable funds for reinvestment.