XN000022-1987-03-18 — Page 34

WEDNESDAY, MARCH 18, 1987

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BROADLY-BASED INDIRECT TAXES DIFFICULT TO INTRODUCE

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THE HON HELMUT SOHMEN TOLD THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY) THAT IN POLITICAL TERMS IT MIGHT BE DIFFICULT TO INTRODUCE BROADLY-BASED INDIRECT TAXES IN HONG KONG.

THIS WAS BECAUSE IN HONG KONG THERE WAS STILL A CONSIDERABLE DIFFERENCE BETWEEN HIGHER AND LOWER INCOME EARNERS.

+

+INDIRECT TAXES BROADLY APPLIED ARE CONSIDERED REGRESSIVE AS THEY INCREASE THE TAX LOAD ON THE LOWER INCOME GROUPS, HE ADDED.

SPEAKING DURING THE ANNUAL BUDGET DEBATE, MR SOHMEN STRESSED THAT THE MOVE TOWARDS A LARGER SCOPE FOR INDIRECT TAXATION WOULD HAVE TO DEFUSE POSSIBLE CRITICISM THAT THEY WERE IMPOSED TO PRODUCE BENEFITS MAINLY FOR THOSE NOW BEARING THE BURDEN OF DIRECT TAXES.

FOR THIS REASON, HE SAID A LINK BETWEEN THE WIDENING OF THE SCOPE OF INDIRECT TAXES AND A LOWERING OF DIRECT TAXES MIGHT NEED TO BE AVOIDED ALTHOUGH QUESTIONS WOULD THEN UNDOUBTEDLY BE ASKED WHY INDIRECT TAXATION WAS TO BE EXTENDED AT ALL IN THE ABSENCE OF ANY IMMEDIATE NEED TO GENERATE ADDITIONAL REVENUE.

ONE OTHER DRAWBACK OF INDIRECT TAXATION WAS ITS MORE LIMITED RESPONSIVENESS IN REVENUE TERMS TO POSITIVELY CHANGING ECONOMIC FUNDAMENTALS, HE SAID.

+ON BALANCE THEREFORE I WOULD ADVISE THE FINANCIAL SECRETARY TO TREAD VERY CAREFULLY WHEN WALKING DOWN THIS PARTICULAR ROAD, EVEN THOUGH I AGREE WITH HIM THAT THE PROPORTION OF DIRECT TAXES CONTRIBUTING TO TOTAL REVENUE SHOULD BE KEPT AT A LEVEL OF CERTAINLY NOT MORE THAN 60 PER CENT.

+PERHAPS WE SHOULD WATCH THE OUTCOME OF THE DEBATE IN OTHER COUNTRIES A BIT LONGER, AND THEN ASK THE GOVERNMENT TO PRODUCE A COMPREHENSIVE SET OF OPTIONS AND THEIR RESPECTIVE PROS AND CONS BEFORE WE JUMP, MR SOHMEN SAID.

HE DESCRIBED THE FINANCIAL SECRETARY'S FIRST BUDGET AS ONE OF +REALISM AND PRUDENCE+, SAYING THAT HE FULLY CONCURRED IN HIS WARNING THAT HONG KONG'S CURRENT EXCELLENT ECONOMIC PERFORMANCE WAS DERIVED FROM EXTERNAL FACTORS.

HE SAID GOOD HOUSEKEEPING SHOULD CONTINUE, PARTICULARLY SINCE THE FINANCIAL SECRETARY DID NOT REALLY HAVE TO DEPRIVE ANY ONE SECTOR OF WHAT WAS NEEDED IN PARTICULAR THE COMMITMENTS OF $6 BILLION IN NEW CAPITAL SPENDING SPOKE FOR THEMSELVES.

/ON THE