Tax oddities

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From this morning's SCMP:

The issue of spreading the tax base is a valid one. I should know. As a member of the professional middle class, I have to hand over about four months' pay in salaries tax every January. However, I must disagree with the financial secretary and the chief executive on the introduction of a GST. It is a horrendous tax to implement, and costly at that. This cost will be passed on to the consumer on top of the proposed 5 per cent tax; driving up inflationary pressure, pushing up interest rates and causing a slowdown in the economy.

Why not levy a flat 5 per cent tax on dividend income instead? It would be easy and cheap to administer at source and, more to the point, it would be more equitable, with those lucky enough to have spare cash to play the stock market paying their way.

MARK NEWMAN, Sai Kung

I pretty much agree with his sentiment here: GST is a useless proposal which will do more harm than good, and seems like exactly the sort of braindead and moronic proposal we could do perfectly well without here in Hong Kong.

I've highlighted one part in Mr. Newman's letter above and that's what I'm going to kvetch about. Four month's pay is one third or 33%. The maximum tax rate in Hong Kong is about 16% (IRD Tax calculator.) How on earth can you pay twice that?

Assuming that Mr. Newman earns 10 million HK$ per year (and has no wife, mortgage, kids or other allowances, he'll only pay 16% of that in tax.

Assuming that Mr Newman makes H$600,000 per year (HK$60,000 per month, a pretty respectable middle professional salary), is married (wife doesn't work) and has two kids and a mortgage ($100,000 interest), he'd pay HK$31,300 per year, or 5.2%. (This doesn't include his retirement fund, which is also tax deductible.) Plus, he could go on a course, have an aged relative dependent, have more kids, give money to charity, etc, all of which would lower his total tax bill.

Now I know there's this annoying thing called provisional tax where you're supposed to pay next years salaries tax in advance, but you only ever get stung for two years at a time once.

I suggest you have serious words with your HR department, Mr Newman. The return they're submitting to the IRD is twice your salary if you have to pay 33% tax. Salaries tax is pretty cut and dried here.

2 Comments

fumier said:

I suspect Mr. Newman is in about his second year here and has just got caught in the catch-up of salaries tax whereby you pay your first year actual tax and second year provisional tax in one go, hence giving the illusion you are paying twice as much _per_ year. Either that, or his income halved and the provional assessment for this year, which is based on the previous year's actual, is therefore higher than his final assessment will be.

dave said:

Well, that had crossed my mind, but he says he pays this every January which makes me think that he's either making stuff up or just lying.

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This page contains a single entry by dave published on September 18, 2006 12:56 PM.

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