A day after the government formally proposed the introduction of goods and services tax (GST), the Hong Kong Institute of Certified Public Accountants said the relief measures offsetting the impact caused by the introduction of the GST should be more generous.

The institute President Paul Chan said, under their rough estimates, the low and middle-income groups would suffer if the tax was introduced, while the high-income group would benefit after the introduction of the tax and the relief measures.

The government proposed on Tuesday that, along with the introduction of 5 per cent GST, welfare payments would be increased and low-income working families would be given a HK$2,000 annual cash payment. All households will also be given a credit of HK$3,500 a year on water, sewage charge and rates.

Salaries tax and profit tax rate could also be reduced by 5 per cent, the government proposed.

But the institute estimates showed that low and middle-income families would be affected if the GST rate was set at 5 per cent.

A two-people low-income family earning HK$7,000 a month will need to pay HK$3,600 GST a year if they spend HK$6,000 a month for expenses. After enjoying the HK$2,000 cash allowance and HK$480 rate deduction, they still need to bear a burden of HK$1,120 a year.

A three-people middle-income family earning HK$30,000 a month will need to pay HK$12,600 GST a year given that they spend HK$21,000 a month for expenses, after paying HK$6,000 for rent and HK$3,000 for savings. They still need to pay an extra of HK$1,510 after saving HK$7,590 from salaries tax cut, HK$500 from water deduction and HK$3,000 from rates deduction.

A four-people family earning HK$50,000 a month will need to pay HK$21,000 GST a year if they spend HK$35,000 for expenses a month. But they can enjoy a saving of HK$10,050 as they pay HK$27,550 less salaries tax, and enjoy the HK$500 water deduction and HK$3,000 rate deduction.

Chan said the relief measures should be targeted at lower and middle income families.

He said the government should divide the lower and middle-income families into different sub-groups, and study the needs of each sub-group carefully.

Chan said the government should spend more on relief measures than the revenue collected from the GST.

He said the Singapore government had spent 1.7 billion Singapore dollars on relief measures, but only collected 1.5 billion Singapore dollars from the GST when the tax was introduced for the first few years.

He believed the government could compensate the extra amount spent on relief measures in the future.

Chan also said the GST's structure should be simplified, avoiding administrative burden on the enterprises. The institute, however, agreed that GST would be effective to broaden the tax base.

Meanwhile, Hong Kong Retail Management Association opposed the GST, saying it would affect consumer spending.

The association feared that the GST would lead to inflation, but wages might not be able to catch up the trend.

The association also feared the government would increase the GST rate, following the example of Singapore, where the tax rate had increased from 3 per cent in 2002 to 5 per cent in 2004.

Democratic Alliance for the Betterment and Progress of Hong Kong legislator Chan Kam-lam said he feared that the GST would affect the retail industry.

A survey of 900 people conducted by the Democratic Party last week revealed that 60 per cent of the respondents had opposed the GST, citing heavy financial burden as the reason. Some 20 per cent supported it in widening the tax base.

(HK Edition 07/20/2006 page2)