HONG KONG: After a tough 2008, and in the face of a huge fiscal deficit, it appears unlikely the government will have much room to offer tax concessions, in line with those handed out last year, the accounting firm Pricewaterhouse Coopers predicted yesterday.

The company, however, called on government to provide some short-term relief measures, such as a tax rebate, exemption from government fees/charges, reduction of the stamp duty, and deferral of provisional tax payments, to help people get through their own financial difficulties.

The accounting firm yesterday provided an updated projection of the government's financial position ahead of Financial Secretary John Tsang's second budget on February 25.

Because of the economic downturn, revenue from land premiums, stamp duties, foreign investments, etc will fall steeply but government expenditure is firmly locked in and there is little room for cutbacks.

A deficit of over HK$50 billion is envisaged in 2008-09 but the precise figure depends on the cost of government relief measures, said Tim Lui, a tax partner of the firm.

For the following two financial years, he estimated budget deficits to reach HK$60 billion and HK$85 billion respectively. In this connection, he forecast fiscal reserves will decrease to HK$289.6 billion by the end of March 31, 2011. That amount is sufficient to cover government expenditures for only 11 months.

Consensus holds that the safety level is breached when reserves fall below 12 months of government expenditure.

If the severe deficit situation persists in the next five-year medium forecast, he said, the government must identify new revenue sources and cut spending.

He added it would be difficult and politically unwise to increase taxes in the midst of bad times.

In the face of the financial crisis, Lui hoped the government would adopt massive relief measures, such as tax rebates and rate exemptions including water and sewage charges.

He also called on the government to allow taxpayers to defer payment of provisional taxes for six months to ease financial difficulties.

Quoting Inland Revenue Department statistics, he said the number of applications for tax deferments on salaries and profits increased to 48,200 and 5,800 applications respectively by the end of 2008.

(HK Edition 01/16/2009 page1)