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Hong Kong Retail Management Association
Opposes Implementation of GST


(Hong Kong, 19 July 2006) - With the release of the Government's consultation paper on a Goods and Services Tax (GST) yesterday, Mr. Bankee Kwan Pak-hoo, Chairman of the Hong Kong Retail Management Association (the "Association") wishes to register the Association's serious concern over the proposed tax, as follows:

1. The Association welcomes a thorough and "real" consultation, which will enable the SAR Government to fully understand the adverse effects that GST would have on the development of Hong Kong.

2. According to overseas experience, the imposition of GST will have an immediate negative impact on the economy, both affecting consumption and leading to a rise in inflation. Consumer spending will be dampened by the general increase in prices. Spending will be further affected if salary increases are lower than the proposed GST rate. To keep turnover up, many small and medium-sized enterprises will not pass on all the GST to customers, narrowing retailers' profit margins. Hong Kong is a small, open economy. GST will only worsen the inflationary pressures that businesses already face in the light of spiralling oil prices and other skyrocketing operating costs.

3. The Association also questions GST's effectiveness in widening the tax base and its impact on Hong Kong's position in the international market. Hong Kong is the only well-developed economy that does not impose GST. It has gained an enviable reputation as a "shopping paradise". If the city's "brand" of excellent quality combined with reasonable prices no longer applies, Hong Kong's retail sector will lose ground in the increasingly competitive battle for tourism dollars. Tax refunds for tourists would not be the answer as the procedures required to obtain them reduce enthusiasm for spending.

4. Hong Kong's low and simple tax system is the driving force for businesses from all over the world to invest in the city. The Government believes it will be more feasible to lower other taxes if GST is successfully implemented. However, after bringing in GST, there may be other reasons for the Government to increase those taxes again. The trend in many economies nowadays is to simplify tax systems. It seems pointless for Hong Kong to make itself less attractive by doing the reverse.

5. Experience from other countries shows extra administrative costs for businesses will result after implementation of such an intricate tax system. In addition, the Government may increase the rate of GST at any time, as has been the case in Singapore where GST rose from 3% to 4% in 2003 and to 5% in 2004. The Association asks whether the Government has properly weighed up affordability along with the benefits it believes GST would bring.

6. As the International Monetary Fund has pointed out, the higher inflation rate since 2000 in Australia is due to the introduction of GST. With Hong Kong's economy just recovering from recession, consumers might find it hard to cope with inflation.

7. Is GST the only way to improve the Government's financial situation? To broaden its sources of income, the Government could take an active role in revitalising the economy. It could also take more note of the fact that civil servants' and public sector pay accounts for 70% of total government recurrent spending. To reduce expenditure, the Association suggests the Government manages its public finances cautiously and continues to improve efficiency. The Government should not threaten to squeeze expenditure on essential services, such as education, if GST is not imposed. The Government should not seek to shift responsibility for public sectors, such as education and social welfare, on to its citizens.

8. One of the Government's aims is to foster harmony in the community. Yet implementation of GST will only widen the disparity between rich and poor. It also raises the spectre of social conflict, and we doubt this corresponds to a harmonious society.

The Association, therefore, strongly opposes the implementation of GST.

 
 

About HKRMA
The Hong Kong Retail Management Association (HKRMA) is the major association representing Hong Kong's retail industry. The Association's current membership represents over 500 major retail chains covering more than 5,000 retail outlets and employing two-thirds of the total retail workforce in Hong Kong. Member organizations are engaged in various types of retail businesses ranging from department stores to supermarkets, convenience stores, drug stores, food, fashion and accessories, specialty stores and industry related service organizations.

Issued by Hong Kong Retail Management Association on19/07/2006