'S'pore tax reforms will not erode HK advantage'

'S'pore tax reforms will not erode HK advantage'

Agence France-Presse, Hong Kong

Singapore has fired a shot across Hong Kong's bows by
announcing a plan to reduce personal and corporate taxes but
economists do not expect this to improve its competitive position
against its regional rival in the short term.

Both are vying to be the premier financial centre in the
region and the Asian headquarters for major multinational
companies.

But with the focus of global investment shifting to China and
North Asia from Southeast Asia since the 1997-98 Asian financial
crisis, Hong Kong's proximity to these markets remains a
compelling attraction, economists said.

And as Hong Kong's financial secretary Anthony Leung pointed
out on Thursday when Singapore's planned tax cuts were announced,
the territory still has lower tax rates than the Lion City.

The Singapore government's Economic Review Committee
recommended the government target a 20 percent rate for both
corporate and personal income tax within three years. The
corporate tax rate now stands at 24.5 percent and the top
marginal personal tax rate is 26 percent.

It is also proposing the government hike the goods and
services tax (GST) from three percent to five percent to
partially make up for the cuts.

The committee said such changes were needed to ensure
Singapore continued to attract investment and talent.

Hong Kong does not have a goods and services tax, although it
is considering introducing one due to persistent budget deficits
in recent years. The territory currently has a flat personal
income tax rate of 15 percent and a corporate tax rate of 16
percent.

BNP Paribas Peregrine's Singapore-based regional economist
Chan Kok Peng said Singapore still had a long way to go before it
caught up with Hong Kong in terms of tax.

"There is no need (for Hong Kong) to be worried for the time
being," he said.

Prudential-Bache regional strategist Robert Rountree also said
the tax cuts in Singapore would have no particular bearing on
Hong Kong.

Companies moved to the territory because of China and "that
reason is way above any kind of tax consideration", he said.

Barclays Capital credit research director Bernard Peh believes
that Singapore will become more competitive but warned the city-
state needed to tread carefully to avoid falling into the kind of
fiscal position Hong Kong now found itself in.

He added both cities could thrive as regional centers.

"Hong Kong has the advantage of a huge hinterland, but
Singapore is near the potentially growing Southeast Asia region.
Indonesia is huge."

The Association of Southeast Asian Nations (ASEAN) free trade
area is due to come into being next year and this could be
expanded to include major trading partners.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand and Vietnam.