The Hong Kong Jockey Club has managed to continue horse races throughout the pandemic, providing a steady source of revenue to the government and to its charitable organisations. Photo: Kenneth Chan
Opinion
Opinion
by Lee Shu Kam
Opinion
by Lee Shu Kam
Why Hong Kong should not raise taxes on gambling and stock trading
Any tax review must ensure the city stays competitive: raising these two taxes will only penalise excellence and drive punters underground, costing the government much-needed revenue
Hong Kong politicians have been proposing ways to boost public coffers of late, as the government prepares to deliver its budget on February 24 in the face of a record deficit of more than HK$300 billion (US$38.5 billion). Predictably, calls for higher taxes have returned, in particular, for the stamp duty on stock trading and the betting duty.
However, the two ideas are stale and counterproductive, especially the move to increase the betting duty – and I say this as someone who does not favour gambling, and who would rather focus on the economic damage of such measures. The “double punch” would only penalise success, something that Hong Kong craves but fears is slipping away as the city grapples with the aftermath of the 2019-2020 political turmoil.
In the past year, there have been two stand-out performers as Hong Kong languished in the economic doldrums: the buoyant stock market and the continuation of horse racing, albeit largely behind closed doors.
Stocks in Hong Kong have breached the milestone of 30,000 points, with the benchmark Hang Seng Index rising above 31,000 points earlier this week to reach its highest since June 2018.
The breakthrough came after the Hong Kong stock exchange raised HK$398 billion in initial public offerings last year – the highest amount in a single year since 2010. The achievement made Hong Kong the second-most-popular listing venue in the world after Nasdaq.
Despite the global market volatility, Hong Kong has maintained and consolidated its status as a leading financial hub. Any increase in the stamp duty on share trading would only dent the city’s greatest strength as a conduit of global capital.
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Horse racing: The pros and cons of holding the Hong Kong International Races during Covid-19
Horse racing: The pros and cons of holding the Hong Kong International Races during Covid-19
Over the past 12 months, many mass sporting or entertainment events across the world have been shelved or cancelled (such as the Tokyo Olympics, and Canto-pop concerts in Hong Kong) or paused (for example, the three-month suspension of the English Premier League) because of the raging pandemic. But Hong Kong horse racing has carried on without a single meeting being called off.
That the Hong Kong Jockey Club has managed to create a “racing bubble”, to provide protection for its racing personnel while fans can continue to bet using digital devices away from the racecourse, is a sterling example of crisis management.
Most importantly, the government has continued to receive a steady stream of much-needed revenue from Hong Kong’s single largest taxpayer, with HK$184 million generated in betting duty at the recent Lunar New Year meeting alone.
The New People’s Party has proposed that the government increase the football and horse racing betting duties from the respective 50 per cent and 72.5-75 per cent, to 80 per cent and 75-80 per cent, claiming, without statistical basis, that it would lead to an additional HK$5.2 billion of betting duty proceeds for the government.
Problematically, any increase in the betting duty would put off punters and be counterproductive for public finances and the Hong Kong economy.
First, a higher betting duty would eat into winnings for punters, driving them to illegal bookmakers, who offer discounts and credit betting to draw customers. This will directly affect betting duty proceeds for the government.
Second, Hong Kong’s betting duty is already the highest in the world. For the 2019/2020 season, the Hong Kong Jockey Club’s total turnover was HK$196 billion, with a net margin of HK$11 billion (after deducting payout, betting duties and lottery fund contributions). This leaves a HK$145 million net surplus after operating costs, charity donations and taxation.
Raising the betting duty will affect the operations and charity work of the organisation, which is also one of the city’s largest employers.
Granted, during this extraordinary period of relaxed liquidity worldwide, rising asset prices are widening the wealth gap and efforts to promote wealth redistribution are necessary to prevent further social instability. However, penalising excellence is not the way to go, and calls to increase the stamp duty on stock trading and the betting duty are old-fashioned, reflex moves that could end up creating more problems.
Rather, inspiration can perhaps be sought from the two-tier profits tax system introduced in 2018, which trimmed tax bills for small businesses. It is in that progressive ethos that discussions to review Hong Kong’s tax system should be conducted, to ensure the competitiveness of the local economy.
Lee Shu Kam is associate head of the Department of Economics and Finance at Hong Kong Shue Yan University
