Asia Pacific

In Hong Kong 'collapse,' government falls months behind on collecting taxes

Bloomberg

Hong Kong is behind on its taxes.

Hundreds of thousands of residents are still waiting for their salary-tax bills, which normally start to land in mailboxes in July. The hold-up is due to a legislative backlog linked to the anti-government protests that have gripped the financial capital for seven months.

Only about one-third of tax assessments for individuals had been made as of Dec. 31, according to the Inland Revenue Department. Authorities are further along in collecting corporate taxes, having assessed 77 percent of profit-tax returns as of Dec. 31. Assessments are the tax bills and refund notices that residents and businesses receive after filling out their returns.

The number of salary-tax assessments made for individuals represent 35 percent of the corresponding figures from last year, according to the department. Salary and profit taxes account for about 37 percent of the government’s projected total revenue for 2019-2020.

Hong Kong’s tax backlog highlights how the pro-democracy protests have not only crippled the city’s economy, but have also put Hong Kong’s reputation as a well-run city at risk. A bill to lower 2018-2019 taxes was being debated in the Legislative Council back in June before the body was suspended for three months amid the large-scale protests.

“This is a symptom of a bigger drop in efficiency we’ve seen in Hong Kong over most aspects of governing,” said Willy Lam, adjunct professor at the Center for China Studies at the Chinese University of Hong Kong.

Lam, who hasn’t received his own tax assessment yet, said that “after seven months of protests, Hong Kong’s chief executive and her administration has been demoralized. They have to be extra careful before rolling out new policies.”

Angered by Beijing’s growing influence over the semiautonomous city, including now-scrapped legislation that would have allowed extraditions to the mainland, demonstrators stormed Hong Kong’s Legislative Council building July 1 and inflicted 40 million Hong Kong dollars ($5.1 million) in damage.

The legislature didn’t reopen until October. The tax law passed the following month, and the city’s revenue department said it began issuing its first batch of tax demand notes in December. It was the first time the agency waited so late in the year to issue the tax assessments, which are typically issued starting from July, government spokesman Alson Wong said.

“The government has collapsed over the last six months,” said Antony Dapiran, a Hong Kong-based lawyer and the author of “City of Protest: A Recent History of Dissent in Hong Kong.” “It can’t even get its act together to send out its tax bills on time.”

The unrest has plunged Hong Kong into its first recession since the global financial crisis. Economists predict year-on-year declines will continue in the first two quarters of 2020, with tourism and retail sectors suffering steep drops. Unemployment is rising, with the jobless rate for the food and beverage sector at its highest level in more than eight years.

The city is expected to face its first budget deficit since the early 2000s thanks to increased government spending on things like police overtime and relief measures. Meanwhile, tax receipts will be lower because retail sales, tourism and other sectors are down. Delays in receiving tax payments could exacerbate the existing shortfall.

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