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Addressinginequality:HongKong,SingaporeheadinoppositedirectionsontaxNikkeiAsianReview

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April8,201511:00pmJST
Addressinginequality

HongKong,Singaporeheadinoppositedirectionsontax
SIDDHARTHPODDAR,Contributingwriter

SINGAPOREHongKongandSingaporehavebecomevictimsoftheirownsuccess.Whilebothcitieshaveprosperedowingtotheir
willingnesstoembraceglobalization,onebyproductofthiseconomicprosperityiswideninginequality.Thisisachallengeboth
governmentssoughttoaddressintheirrecentbudgets,albeitindifferentways.
Singapore,whichisexpectingabudgetdeficitforthesecondyearinarow,announcedinitsFebruarybudgetthattherichwillpay
moretax.HongKong'sgovernmentexpectingahigherthanexpectedsurplusasusualfocusedinsteadontaxcutsasawaytohelp
alleviaterisingcostsofliving.Thetworivalfinancialcentersalsointroducednewmeasurestoboostbusiness:Singapore'seffortsthis
yearemphasizetheneedtohelpsmallandmediumsizeenterpriseswhileHongKong'snewmeasuresaremostlydirectedatthefinancial
servicessector.
Singapore'sdecisiontoraiseincometaxforthehighestearnersannualincomesexceeding320,000Singaporedollars($230,489)
from20%to22%mayseematoddswithitsgoaltobecomethe"SwitzerlandofAsia."Thecitystatehasenjoyedconsiderablesuccess
withitsprivatebankingindustryandpopularityasanoffshorewealthcenter.Ithasalsobeenverykeentoattractforeignprofessionals.
Buttaxexpertssayitisnotasurprisingmovegiventhereisrisingpublicangeroverthecostoflivingandthebroadeningincomegap.
BothHongKongandSingaporehavenotoriouslywidewealthgaps,asmeasuredbytheGinicoefficientthehigherthevaluethe
worsetheincomedisparity.HongKong'swas0.537in2011andSingapore'swas0.463in2013.Bycomparison,Japan'swas0.329in
2012.
Singapore,strugglingtonarrowadeficitexpectedtoreachS$130millionfortheyearendingMarch31,needsnewtaxrevenuestofund
itssocialwelfareinitiatives,suchasanewcashhandouttolowincomeearnersaged65andabove.Thereisalsoanothermeasureinthe
budgetpromptedbyanagingpopulation:employeesandemployerswillbepayingmoreintotheCentralProvidentFund.
TanChingKhee,taxservicespartneratEYSingapore,aglobalauditorandconsultancy,saidSingapore'sgovernmenthasmadeitclear
overthepastfewyearsthatitseekstomaintainamoreprogressivetaxsystem."In2013,forinstance,taxeswereraisedwithinsome
incomebrackets.Andin2010,thereweresomechangestothepropertytaxregimewherethepropertytaxwasraisedonhighervalue
properties,andthatimpactedhighnetworthindividuals.
"Theideaistofundsomeofthesocialmeasuresthatprovidemorehelptothelowerincomegroupssotheycanalsobenefitfromthe
economicgrowthSingaporehasbeenenjoying,"headded.
Tandidnotbelievea2%increaseinthetopearners'taxationrateplacesasignificantfinancialburdenonthoseindividuals.
OneforeignentrepreneurinSingaporewhowillbeaffectedbytheratehikeagreed."A2%increaseisreasonableitisstillquitelow
actually,"hesaid,whilerequestingtoremainanonymous.
"VisaviswhatSingaporeoffersintermsofsafety,securityanditsbusinessenvironment,a2%increaseisnothing.Ivaluethesocio
politicalenvironmentinSingaporewaymorethanthe2%incrementthatIwillneedtopay,"headded.
ButanotherexpatriateabankerwhoworkedinHongKongbeforesaidSingaporecouldbeoutpricingitselfinthelongterm.
Hesaidthatifthegovernmentcontinuestoraisetaxesonthetopincomebracket,coupledwiththeincreasingcostoflivingin
SingaporetheEconomistIntelligenceUnitsaidthecityhadthehighestlivingcostsintheworldfortwoyearsrunningitwillmake
peoplethinkagainaboutmovingthere."AndIthinkprofessionally,HongKongisamuchmoredynamicworkingenvironmentanyway,"
hesaid.
TheHongKongpackage
Meanwhile,HongKonghasjustannouncedataxreductionofupto20,000HongKongdollars($2.578)onprofitsaswellaspersonal
income,upfromHK$10,000previously.ItalsoraisedchildallowancesbyHK$30,000toHK$100,000.
TheseinitiativeswerepartofaboutHK$34billionworthoftaxhandoutsannouncedbythegovernment,whichexpectsabudget
surplusofHK$63.8billion.Othermeasurestohelpthepoorincludedarentalwaiverforpublichousingtenants.HongKongalsoset
asidemoneyina"FutureFund"aninvestmentfundthatcanalleviateanexpectedfiscaldeficitinthefutureoncethepopulationhas
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Addressinginequality:HongKong,SingaporeheadinoppositedirectionsontaxNikkeiAsianReview

agedfurther.
HongKong'swealthgapisworsenedbythegovernment'sfailuretocooloneoftheworld'smostexpensivepropertymarkets,with
priceshittingarecordhighlastyear.LikeSingapore,taxeshavebeeninplacetocurbspeculationandinFebruary,newmeasureswere
introducedtolimittheamountbuyerscantakeoutinmortgages.
Intermsoftaxmeasuresdirectedatbusiness,Singaporeismakingacontinuedpushtowardgreatersupportforitssmallandmidsize
enterprises,whichformthebackboneoftheeconomyandemployupto70%ofthecountry'sworkforce.Incometaxrebatesandother
fiscalincentivesarebeingintroducedtoencourageemployerstoofferworkersbettertrainingandtoimproveproductivityand
innovation.
TanaddedthatthegovernmentwillalsohelpSMEstointernationalizeandlookbeyondSingapore.
HongKong'sbudget,ontheotherhand,isseenasbeinggearedtowardfurtherentrenchingHongKong'sstatusasafinancialhub.For
instance,itisprovidingtaxincentivestocorporatetreasuryactivitiesinabidtocompeteagainstSingaporeasabaseformultinationalsto
conducttheirforeignexchangeandothertreasurytransactions.
JohnTsangChunwah,thefinancialsecretary,alsosaidhewouldproposeabillthatwillallowprivateequitiestoenjoytaxexemption
availabletooffshorefunds,inabidtoattractmoreprivateequityfundstodomicileinHongKong.
HealsoaddressedataxanomalythatmadethecitylessattractivetotheaircraftleasingbusinessthanSingapore."Aerospacefinancing
iscrucialtothedevelopmentofhighvalueaddedaviationservices,"hesaid,addingthathewouldstudytheexperienceofother
jurisdictionsandexploremeasuresthatcanpromotetheindustryinHongKong.

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