Old habits die hard in the former colony – but there’s a new tax on food and books

The Valhalla which is Hong Kong’s low and simple taxation system is set to be demolished. The government of the Special Administrative Region of the People’s Republic has come up with the bright idea of getting its people to share the festering sore which in Britain goes by the name of Value Added Tax and does so much to detract from the sum of human happiness. Hong Kong plans to introduce a Goods and Services Tax to be levied at a modest 5 per cent, compared with British VAT at 17.5 per cent. But these evil schemes always begin modestly and have a way of becoming less modest as time goes on.

There are some other significant differences in the Hong Kong-style proposed VAT. In Britain and most other places where taxes of this kind are levied, basic necessities such as food are exempt. Not so in Hong Kong, which is also planning to slap the tax on books and other publications, and on educational services. But there will be exemptions for, of all things, property developments. The big bosses of the property companies are the most influential people in town, so the reason for this exemption is not hard to detect.

And although it is widely acknowledged that a tax of this kind is regressive — hitting the poor harder than the rich — the Hong Kong government is thinking about reducing its supposedly progressive income and profits taxes to alleviate the pain. In fact only a small minority pay income tax, chiefly middle-class salary earners. British taxpayers, eat your hearts out: the maximum income tax rate here is only 16 per cent and the top rate of profits tax is just 17.5 per cent. However, most seriously rich people in Hong Kong pay practically nothing in personal taxes, because they take their income in the form of dividend payments from their companies, which are not subject to tax.