TNAG-1361-FCO40-1807-Hong-Kong-Hansard-reports-and-minutes-of-the-meetings-of-the-1985 — Page 100

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I have every confidence that the Government would succeed in holding down public expenditure over the next few

years. I am less confident, however, about the Government being able to achieve sufficient revenue without substantially widening our tax base. In our attempt to increase tax yields, we have raised the level of taxation to the point where it is beginning to generate problems over avoidance and evasion. Evasions of duty are a case in point. It is all very well to plug loopholes and to tighten controls, and plug and tighten we must, but it must be remembered that these efforts have the

effect of increasing expenditure.

Revenue suggestions

This brings me to my second observation. In order to increase public revenues substantially, say by $1 billion the Financial Secretary said he would need this year to achieve a balanced budget, I believe the time has come to face up to the harsh reality that we need to widen our tax base by introducing

a new tax or new taxes.

Having regard to the requirements for the fiscal

system, as outlined in footnote (6) of Appendix A to the Budget Speech, a tax that could lead to a balanced budget this year could be a flat 1/2% levy on the value of all imports

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excluding foodstuffs. The effect of such a tax should, if the Government's forecast for imports in 1985 is realistic, yield

close to $1 billion a year. Such a tax would be only mildly inflationary. It would be easy and inexpensive to collect and administer, for we already have the mechanism of trade declarations. It should bear equitably on all sectors of our community. At a rate of 1/2 a percentage point such a tax would be unlikely to induce wholesale avoidance and evasion. And, finally, given the size of Hong Kong's imports, this is the sort of tax that is likely to produce increasing yields.