The Asian Business Lawyer
Vol. 14 (Fall 2014), pp. 193-222
Abstract: Some claim that Hong Kong is a remarkable tax policy museum while others say it is a centre of tax policy innovation — who is right? In fact, both views are credible. In both cases, these outcomes are the product of a near continuous economic dialectic — and happenstance — set within a particularly relevant culture. Text book policy planning has provided after-the-fact rationales far more than it has generated future policy blueprints.
This article explains why the Hong Kong Revenue Regime has such a museum feel. And also how this “arrested development” has produced an “innovative system”. The innovation is unorthodox but real enough. Compared to most other developed jurisdictions: it has involved, above all, applying an instinctive version of “Occam’s Razor” to system review and development: reform has been kept to the bare minimum. Hong Kong thus retains a Revenue Regime which is (formally) low tax, clearly simple (with low compliance costs) and it has generated revenues sufficient to build excellent infrastructure, to provide often first rate government services, to enable Hong Kong to stay virtually debt free and to amass huge Fiscal Reserves. All of these achievements pivot, fundamentally, on Hong Kong’s remarkable, Land Revenue Regime (hereinafter LRR), which has enabled long-term (and continuing) reliance on significant, land-based funding of public revenue.
The LRR is certainly not perfect. First, the cost of doing anything in Hong Kong is notably inflated by the very high cost of land; ultimately provided by a de facto monopoly supplier, the Hong Kong Government. Further examples: the poverty gap is far wider than it should be; and planning to cope with the onset of major demographic and other changes is poor. The overall success of the land-based funding of public revenue has, however, also provided the basis for some positive responses to these shortcomings. Moreover, the LRR offers potentially important revenue policy lessons for application beyond Hong Kong — at least, where this may still be politically possible. This article argues that the greatest potential in this regard lies in Mainland China. Click here to download the full article.