Hong Kong's government is considering increasing taxes on the city's highest earners for the second consecutive year to address budget deficits, according to sources familiar with the matter.
In recent public consultations, officials have proposed raising the 16% tax rate for individuals earning HK$5 million or more.
Another option under discussion was to expand the highest tax bracket by lowering the income threshold, the sources added.
However, it remains unclear whether any definitive plans have been made or if the government will move forward after the initial consultations.
“During the budget consultation process, we received diverse proposals from different sectors and members of the public. We do not comment on individual proposals or speculations,” a spokesperson from the Financial Secretary’s Office said.
If implemented, this move would mirror the tax increase in 2024, when the top tax rate was unexpectedly raised for the first time in 20 years, Bloomberg reports.
The Asian financial hub is grappling with significant budget deficits and seeking ways to recover from a talent exodus. The economy is facing challenges in its recovery, hindered by the aftermath of strict Covid-19 restrictions and ongoing political instability.
Cautious about affecting the city's appeal as a low-tax hub, officials have stressed that cutting expenses will be the primary approach to reducing the deficit. However, they have also emphasised that those with the highest earnings should bear a larger share of the financial burden.
“It is crucial to maintain Hong Kong’s competitive advantage of a simple and low tax system,” according to Financial Secretary Paul Chan back in January.
“However, it is equally important to adhere to the principle that those who could afford should pay more, thus minimising the impact on ordinary members of the public.”
Chan has indicated the need for an austerity budget, having revised the deficit estimate to nearly HK$100 billion, a significant increase from the original forecast of HK$48.1 billion. The new budget is scheduled to be revealed on 26th February.