Jake's View | Keeping the taxman on the other side of the mountains
It's a tall order for tax chiefs to reprocess facts of how business is done on mainland, where money works best away from the state's reach
I am much taken by an old Chinese aphorism on relations between government and citizen - : the mountains are high and the emperor is far away.
For a concrete example of it, look at the chart. Hong Kong's re-exports from the mainland to the rest of the world run at about HK$2.2 trillion a year at present and the average mark-up on these goods as they pass through Hong Kong is 16.3 per cent as of the latest available figures.
Both this mark-up, officially called the rate of re-export margin, and the word "re-export" itself imply that some work is done on these goods here. Let us say it produced only 5 per cent value added. That would still imply export reprocessing worth more than HK$100 billion a year. Can you tell me where in this town this work is being done? Don't ruin your eyesight.
What happens, of course, is that the goods are shipped out of the mainland at cost so that the Beijing taxman gets no profits tax and the profit margin is then added to the paperwork in Hong Kong, where there is also no tax assessment as our taxman fully recognises no work is done here.
