Hong Kong is months behind on tax collection

Hong Kong is behind on its taxes.

Hundreds of thousands of residents are still waiting in January for their salaries tax bills, which normally start to land in mailboxes in July. The hold up is due to a legislative backlog linked to the anti-government protests that have gripped the Asian financial capital for the last seven months.

Only about one-third of tax assessments for individuals have been made as of Dec. 31, according to the city’s Inland Revenue Department. Authorities are further along in collecting corporate taxes, having assessed 77% of profits tax returns as of Dec. 31, it said. Assessments are the tax bills and refund notices residents and businesses receive after filling out their returns.

The number of salaries tax assessments made for individuals represent 35% of the corresponding figures from last year, according to the department. Salaries and profits taxes account for about 37% of the government’s projected total revenue for 2019-2020.

Hong Kong’s tax backlog highlights how the pro-democracy protests that have rocked the city for months have not only crippled the city’s economy, but have also put Hong Kong’s reputation as a well-run, efficient city at risk. A bill to lower 2018-2019 taxes was being debated in the Legislative Council back in June before the body was suspended for three months amid the large-scale protests.

“This is a symptom of a bigger drop in efficiency we’ve seen in Hong Kong over most aspects of governing,” said Willy Lam, adjunct professor at the Centre for China Studies at the Chinese University of Hong Kong.

Lam, who hasn’t received his own tax assessment yet, said that “after seven months of protests, Hong Kong’s chief executive and her administration has been demoralized. They have to be extra careful before rolling out new policies.”

Taxman cometh

Angered by Beijing’s growing influence over the semi-autonomous city, including now-scrapped legislation that would have allowed extraditions to the mainland, demonstrators stormed Hong Kong’s Legislative Council building on July 1 and inflicted HKD40 million ($5.1 million) in damage.

The legislature didn’t reopen until October. The tax law passed the following month, and the city’s revenue department said it began issuing its first batch of tax demand notes in December. It was the first time the agency waited so late in the year to issue the tax assessments, which are typically issued starting from July every year, government spokesman Alson Wong said.

“The government has collapsed over the last six months,” said Antony Dapiran, a Hong Kong-based lawyer and the author of “City of Protest: A Recent History of Dissent in Hong Kong.” “It can’t even get its act together to send out its tax bills on time.”

The unrest has plunged Hong Kong into its first recession since the global financial crisis. Economists predict year-on-year declines will continue in the first two quarters of 2020, with tourism and retail sectors suffering steep drops. Unemployment is rising, with the jobless rate for the food and beverage sector at its highest level in more than eight years.

‘Now delayed’

The city is expected to face its first budget deficit since the early 2000s thanks to increased government spending on things like police overtime and relief measures. Meanwhile, tax receipts will be lower because retail sales, tourism and other sectors are down. Delays in receiving tax payments could exacerbate the existing shortfall.

“In making the projection for tax revenue, this factor will be taken into consideration,” said Ivy Choui, a government spokeswoman, of the factor of delays in receiving tax payments.

Choui didn’t say when the agency would finish sending out the tax bills but that some assessments might not be due until the next fiscal year beginning April 1. Payment due dates are set at least 6 weeks from the issue dates of the demand notices, she said.

The tax delays are impacting residents like Clementine Demange, who lives in Hong Kong with her husband and 17-month-old toddler and works in banking. She moved to Hong Kong from France six years ago and has prized the city’s efficiency and ease.

The overdue assessments have made it hard for her family to plan how much money to put aside and “I was all the more frustrated because I needed my tax assessment to finalize an investment in France that’s now delayed,” she said. “Given the tense social environment we totally understood that there could be delays. It’s just unfortunate that we badly needed our tax assessment this year.” Shelly Banjo & Eric Lam, Bloomberg