The standard tax rate could be cut by up to 5 percentage points - to 11 per cent - and the tax bands considerably widened under a proposed goods and services tax (GST), according to a consultation paper to be unveiled next week.
The cut is one of the possible scenarios outlined in the government document, which will kick off a nine-month consultation on plans to widen Hong Kong's tax base by introducing a GST as early as 2010. The new tax, to be imposed across the board at a rate of 5 per cent, is estimated to raise $30 billion a year for the public coffers.
Instead of granting exemptions for goods and services considered daily necessities, the paper suggests giving allowances of up to $3,500 per household and extra relief to lower income families.
The revenue generated by a GST would create room for cuts to direct taxes, including salaries tax or property tax.
A government source familiar with the subject said if the net revenue generated by the GST was applied to cuts in personal income tax, it could lead to a reduction of the standard tax rate to 11 per cent.
The lowering of the standard tax rate would be accompanied by a widening of the tax bands, with the first band above the basic allowance raised from $30,000 to $75,000 and the tax rate for that band halved from 2 per cent to 1 per cent.
