HONG KONG, Feb 22 (AP) -- With Hong Kong's economy in its best shape since the Asian financial crisis, the government will consult the public on a plan for a sales tax in midyear, the financial chief said Wednesday.
Experts say Hong Kong depends unduly on revenues from taxes imposed on people's income and company profits, which can swing sharply along with the ups and downs of the economy.
For years, the government has been mulling the introduction of a goods and services tax, which would broaden Hong Kong's tax base and provide a cushion against the vagaries of the economic cycle. But civic activists and small businesses have voiced opposition to such a tax, saying it would mostly affect the poor and hike costs.
In his budget speech Wednesday, Financial Secretary Henry Tang told lawmakers that Hong Kong's economy is in good shape and it's time to start discussing a sales tax proposal. A public consultation, which will last nine months, will be launched in midyear, he said.
But Tang said he won't submit a formal proposal to the government before the expiry of Hong Kong leader Donald Tsang's current term in mid-2007.
The plan will be considered by the next government, which will take office in July 2007 and it will take about three years to implement a sales tax, he said.
Tang didn't offer clues about the rate of the sales tax, but he noted Hong Kong's distaste of high taxes will compel him to "follow the principle of maintaining our low and simple tax regime."
To soften anticipated opposition to the proposal, Tang said the government plans to offer tax relief to taxpayers and increase welfare payments. Visitors to Hong Kong will also get tax refunds.
Tang said he plans to reduce the marginal rates of Hong Kong's top tax bands on individuals, from 8 percent, 14 percent and 20 percent to 7 percent, 13 percent and 19 percent, respectively.
That will cost the government HK$1.5 billion (US$192 million; €161.26 million) in revenue as 1 million taxpayers get a break, but Tang rejected calls for steeper cuts that he said would have cost HK$7 billion (US$897 million; €753.4 million) yearly in foregone revenue.
Tang also proposed extending the period in which home mortgage holders can deduct up to HK$100,000 (US$12,821; €10,768.52).
Legislation providing for those tax cuts will be implemented as soon as possible, he said.