Tell me about the Hong Kong tax system

Is it true that Hong Kong has a 15 percent flat tax for everybody?

If so, how can that work in practice, since most other countries have felt the need to have a progressive taxation scale? How do the authorities get enough revenues to run the place?

I think the tax system in Hong Kong is a lot more complicated, and that hardly anyone pays the flat tax (it is an option). I will see if I can did up the article I was reading today

Hong Kong has a 15 per cent flat tax for a very few, top earners. The majority of the population here pay no tax at all. Nor is there a sales tax, as such.
One of the problems being discussed by the government currently, in light of a recent, rare budget deficit, is how to widen the tax base.
The lion’s share of tax income comes from businesses.
Bear in mind, however, that Hong Kong has never had to pay for its own defence and, while there is a lot of public housing, there is little else in the way of social security.

Not if you fall into the tax bracket, which, I think, begins at about HK$12,000 per month — about US$1,530. Above that, you have to pay your 15 per cent.

That sounds like an amazingly low income tax, even when you factor in that Hong Kong doesn’t have an army. After all, Iceland doesn’t have an army either, and they have an income tax of nearly fourty per cent for most people.

Does Hong Kong provide any kind of social security? How about medicine? Education?

Could it be that the low income tax is partly financed by a high sales tax, high taxes on corporations, or customs tariffs?

If the tax rate really is amazingly low in Hong Kong, wouldn’t China want to cash in by raising it somewhat, as it might still be a pretty good deal?

Just a WAG, but it seems that your questions come from the fact that most governments operate at a very low efficiency (sorry, no cite). Looking at Russia, which has tremendous corruption and government ebezzlement, socialized medicine, state pensions and yet manages to maintain an almost-flat personal income tax of 12%(it does scale, but not significantly). Googling for “Russia Tax System” brings up a few resources but none of them comprehensive enough to link.

Russia does have a VAT and a very high corporate profit tax, but I’m sure Hong Kong generates most of its revenue from businesses and not individuals.

Not much in the way of social security but medical services are good and cheap - but not free - and there is a pretty good school system.

There isn’t a blanket sales tax at all but I think some luxury goods, wine etc, is subject to substantial tarriffs - as is fuel.

There would not be much point to China raising HK’s tax simply because, under our one country, two systems regime, Hong Kong tax would go to the Hong Kong government - which usually has more than enough money for its purposes. Plus, there are only 7 million people in Hong Kong so a few more dollars from them would be but a drop in the ocean of China’s coffers if it were to take the money.

Umm, actually as of 1998 (last year I lived in honky town) the tax rate starts at 15%. It does scale up but one has to earn quite a bit and the top level isn’t that high. Anyone have the actual rates these days?

There is no captial gains taxes.

What no one has mentioned is that the government gets a significant portion of revenue from land lease rights. HK has very high rents but there is significant land that could be developed - but there is an unholy and completely non capitalistic alliance between the handful of major developers and the government.

So, while the flat income tax rate is generally 15%, if you don’t live in subsidized housing, you pay an enormous amount of money in rent. If one combined free market rent and the tax rate for those that don’t qualify for government housing, the cost of living is much higher than a 15% tax rate would apply.

Granted, rents are on the high side but “enormous” is overstating the case, IMO. Rents have dropped by almost 50 per cent since 1997, following the Asian Financial Crisis - although they are starting to creep back up - and Hong Kong consistently ranks below the likes of Tokyo and London in rent surveys.

A misconception about Hong Kong that I’ve seen repeated several times is that it’s a capitalist paradise, with the free market taking care of everything. In actual fact, it’s a capitalist paradise with strong government regulation.

There is a large number of facilities owned and run by the government, with only a few departures from the European-style government model.

The personal income tax-free allowance, on which you pay nothing at all, is very high (HK$180,000 = US$13,840); above that there’s the very low 15% flat rate; corporation tax is only 16%; the state does not provide pensions nor uneployment assistance; the amazingly efficient Mass Transit Railway (MTR) subway system was built and is run by a private company.

However, as stated, in addition to the standard governmental emergency services, there are huge government housing schemes; there is annual property tax; free public education is available to all; the public health sector is heavily subsidised, and many hospitals and health centres are government-run and owned; buses and minibuses are state owned; even the taxis are owned and regulated by the state - taxi drivers merely rent the cars and the licenses from the government; there’s a very large (and pretty good) civil service; most new land reclamation schemes, such as those in the harbour and the new airport, are government funded; even (legal) gambling is state-owned, via the Jockey Club.

In reality, in my opinion, Hong Kong is a pared-down, very fiscally efficient version of the UK as it stood in the early 1950s. And it works amazingly well, partly due to the communal support network in families (though woe betide you if you’re too old to work, without a family to look after you).

[All the above is based on my three years’ experience living in Hong Kong, during which time I never paid any tax, and my subsequent visits up until 2000; I’m back there in a couple of weeks - can’t wait - so I’ll correct myself if I got anything wrong!]

A monopolist paradise, even.

A couple of nitpicks:

The MTR was built by the government, which began semi-privatising it a few years ago.

Taxi drivers can, and do, buy their licences, which sell for HK$2 million (US$250,000) apiece.

Hope you enjoy your return jjimm. Are you back on holiday?

Good point. I stand corrected on other nitpicks too.

Thanks. HK is the starting point for a major Asian backpacking expedition, and I’m also visiting friends.

Don’t forget, HK is a city-state which means you get much more bang for your buck out of each tax dollar. No expensive interstate highways or telephone systems to maintain, fewer counties to administer.

Also, the system of government focuses very much on efficiency, HK is, IIRC, the worlds least corrupt country. Singapore would be another example of a high income/low tax city-state run on a very similar model.

For anyone still interested, it seems the standard rate of personal tax in Hong Kong has now risen to 16 per cent: see table at bottom