In recent months we have seen a number of events which may have an impact upon the future of taxation in Hong Kong. On 10 December 2003 the Governments of the Hong Kong Special Administrative Region (HKSAR) and Belgium signed an Agreement for the Avoidance of Double Taxation (DTA). This is the first comprehensive DTA which the HKSAR has signed with another country and is currently the subject of approval by the Legislative Council in Hong Kong. Once approved, it will be effective from 1 April 2004. The DTA is the first of a network of DTAs currently being negotiated by the HKSAR Government. Further details are contained in our Tax Notes Issue 10.

The Hong Kong economy has shown signs of recovery recently. This enabled the new Financial Secretary, Mr Henry Tang Ying-yen, to announce in his 2004 Budget Speech a reduced projected government deficit of HK$49 billion for the fiscal year to 31 March 2004 compared with his earlier projection of HK$78 billion. Whilst the Budget Speech did not contain any immediate changes other than confirmation of minor increases in the rates of Salaries Tax, Profits Tax and Property Tax, the Financial Secretary put forward a number of proposals which could impact the taxation system in Hong Kong over the next few years.

For many years, there has been debate over the role of Estate Duty in Hong Kong. Estate Duty is imposed upon assets which pass on the death of an individual. The important factor is therefore the locality of assets rather than the place of residence of the deceased. One of the Financial Secretary's ambitions is to promote Hong Kong as a Premier Asset Management Centre but there are concerns that Estate Duty could be a limiting factor. The Financial Secretary will review the role and impact of Estate Duty and will report his findings in his next budget speech in March 2005

The Financial Secretary also recognised that Hong Kong has a narrow tax base and that Hong Kong is the only developed jurisdiction which does not have a consumption tax or Goods and Services Tax (GST) to broaden the tax base and produce a stable source of income. The Government has set up an internal committee to review the introduction of GST in Hong Kong. This committee will report to the Financial Secretary at the end of this year. It is expected that any proposals regarding GST would take at least three years to bring to implement.

However, whilst changes are under consideration some aspects of tax remain the same. The Commissioner of Inland Revenue has recently announced the filing deadlines for the Year of Assessment 2003/04 and will continue to impose penalties on late filers. A full list of the filing deadlines for taxpayers is set out in our Tax Notes Issue 11. We urge our clients to ensure they file their returns on time if they wish to avoid penalties.