Following a question regarding two tax measures proposed by Chief Executive in her election manifesto, the Secretary for Financial Services and the Treasury has replied on focusing tax relief for small and medium enterprises.

In the 2017-18 Budget, the Financial Secretary announced that a tax policy unit (TPU) would be set up in the Financial Services and the Treasury Bureau. The TPU has three objectives, namely (a) to ensure that their tax regime aligns with international standards; (b) to leverage their tax policy to promote the development of Hong Kong’s economy and industries; and (c) to explore ways to broaden the tax base and increase revenue, with the first priority being to capitalise their tax policy to facilitate the development of Hong Kong’s industries and economy. The TPU has commenced its work from late April this year. The first research topic is the provision of enhanced tax deduction on research and development expenditure. The introduction of a two-tiered profits tax system as proposed by the Chief Executive in her election manifesto is another item on TPU’s agenda and research on it has already been started. Once specific proposals have been drawn up, the Government will consult the stakeholders concerned.

Currently the proposals of the Chief Executive would be to introduce a two-tier profits tax rate system and lower the profits tax rate for the first HKD2m (USD256,000) of profit from the current 16.5 percent to 10 percent; as well as to provide additional tax deductions for business spending on research and development activities.