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Singapore and Hong Kong find it hard to keep taxes low as people age

THE divergence of Singapore and Hong Kong as financial and shipping centres is growing as Singapore plans to raise taxes while Hong Kong clings to its low-tax regime.

Singapore's goods and services tax (GST) of 1994 now accounts for almost one-quarter of the city state's taxes.

Hong Kong toyed with the idea of a GST in 2006, but popular opinion was against it though it is still on the table in the face of an aging population ever-narrowing tax base, notes a Bloomberg commentary.

If the US lowers its tax on corporate profits to 20 per cent, and Japan cuts its 30 per cent rate to 25 per cent or below, there'll be little leeway for a small economy like Singapore's to increase its 17 per cent rate, especially with Hong Kong at 16.5 per cent. 

That's why arguments for a higher GST in Singapore grow stronger. In Hong Kong, 46 per cent of its tax revenue comes from corporate profits and land premiums.

If Hong Kong shies away from a sales tax, the administration may become even more dependent on land revenue. In the world's least affordable property market, that could fuel speculative mania around Beijing's vision of a Greater Bay Area, connecting Hong Kong and Macau with China's Guangdong province, said the Bloomberg commentary.

Other options are closed. The top five per cent of Hong Kong taxpayers account for more than 60 per cent of the government's take from salaries. Squeeze them harder, and rich professionals might up and leave for Singapore. 

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