Seven Policies For Government to Consider--- 1b. Luxury Goods Tax as Short Term Deficit Relief

The inheritance/gift tax discussed in the last article mentioned deal with government structural and long-term deficit. For short term deficit relief, I believe a luxury goods tax will lessen part of the deficit through raising government revenue and widening the tax base.

We suggest, preliminarily, an 8% blanket tax for luxury goods of over HKD10K. Compared to the sales tax, which was hotly debated in the previous round of budget deficit during 1998-2004, luxury goods tax does not affect the mass public. It more likely affects tourist especially those from mainland. But from my research at Hong Kong Institute of Asia-Pacific Studies, I note that mainland tourists, compared to foreign tourists, tend to spend more on shopping and most of the goods they shop for are imported luxury goods. So even if luxury tax erodes Hong Kong competitiveness a bit, GDP consumption expenditure will unlikely be much affected by the decreased luxury good sales, for luxury goods sales contribute less to value-added.

*Tax rate and tax bracket are pending more accurate statistics from internal government departments.