The Hong Kong government is considering an increase in tax deductible income from HK$36,000 (US$4,608) to HK$60,000 in an attempt to boost public participation in deferred annuity schemes as well as voluntary contributions to the city’s Mandatory Provident Fund.
According to a government paper circulated among lawmakers on Thursday: “There have been calls from the industry and Legislative Council members to raise the aggregate maximum tax deductible limit from HK$36,000 to over HK$100,000, and to extend the coverage of tax deductions to deferred annuity premiums for a taxpayer’s spouse.
“As an annuity is a convenient tool for a taxpayer to plan for his or her retirement, as well as that of his or her spouse, we consider it justified to extend the tax deductions to cover deferred annuity premiums for a taxpayer’s spouse by increasing the maximum limit from HK$36,000 to HK$60,000.”
Financial Secretary Paul Chan Mo-po had suggested a tax benefit in his budget in February to encourage people to buy deferred annuity plans and increase voluntary contributions to the MPF, and he had proposed a maximum of HK$36,000 as tax deductible income.
“This is definitely a good step forward, as the government has listened to an industry call for increasing the tax deductible income to HK$60,000,” said Peter Tam, chief executive of the Hong Kong Federation of Insurers.
The increase in exemption will, however, mainly benefit high-income earners. If taxpayers claim the maximum exemption amount against the purchase of an annuity product or voluntary contribution to the MPF, those earning a monthly salary of HK$60,000, will see their exemption amount increase to HK$10,200 from HK$6,120; those who pay the 15 per cent maximum will see their exemption increase to HK$9,000 from HK$5,400, according to the government paper.
The tax benefit for Hongkongers earning between HK$15,000 and HK$30,000 a month will remain unchanged as their tax payment is already low and the new cap will not affect them.
Currently, those who earn HK$15,000 a month, which is close to the median Hong Kong salary of HK$16,800, only save HK$180 in tax payments a year, provided they apply for maximum exemption. Those who earn HK$20,000, save HK$720 in taxes, while those who make HK$30,000, save HK$2,820 in taxes.