The Valhalla which is Hong Kong’s low and simple taxation system is set to be demolished. The government of the Special Administrative Region of the People’s Republic has come up with the bright idea of getting its people to share the festering sore which in Britain goes by the name of Value Added Tax and does so much to detract from the sum of human happiness. Hong Kong plans to introduce a Goods and Services Tax to be levied at a modest 5 per cent, compared with British VAT at 17.5 per cent. But these evil schemes always begin modestly and have a way of becoming less modest as time goes on.
There are some other significant differences in the Hong Kong-style proposed VAT. In Britain and most other places where taxes of this kind are levied, basic necessities such as food are exempt. Not so in Hong Kong, which is also planning to slap the tax on books and other publications, and on educational services. But there will be exemptions for, of all things, property developments. The big bosses of the property companies are the most influential people in town, so the reason for this exemption is not hard to detect.
And although it is widely acknowledged that a tax of this kind is regressive — hitting the poor harder than the rich — the Hong Kong government is thinking about reducing its supposedly progressive income and profits taxes to alleviate the pain. In fact only a small minority pay income tax, chiefly middle-class salary earners. British taxpayers, eat your hearts out: the maximum income tax rate here is only 16 per cent and the top rate of profits tax is just 17.5 per cent. However, most seriously rich people in Hong Kong pay practically nothing in personal taxes, because they take their income in the form of dividend payments from their companies, which are not subject to tax.
The tremors of popular backlash are already being heard and were fuelled by Lord Patten, Hong Kong’s last governor, during a recent visit. His Lordship wryly reflected on his earlier experience of being responsible for the poll tax as Margaret Thatcher’s environment minister, and warned his successors in Hong Kong of the perils of introducing new taxes that might attract accusations of injustice. The former chairman of the Conservative party, evidently in the spirit of its new leadership, called the Goods and Services Tax ‘socially inequitable’. This rather annoyed Henry Tang, Hong Kong’s finance minister, who not only accused Patten of being ignorant of economic principles but used a crude Cantonese expression about Lord Patten ‘patting his butt and leaving’ — widely understood to mean that he was accusing the former governor of being happy to quit leaving a fiscal mess behind him. More of the same can be expected as the debate intensifies during a so-called consultation period initiated by Mr Tang.
As the debate heats up, so does the temperature: in subtropical Hong Kong the summer consistently sees thermometers registering temperatures above 30°C, matched by stultifying humidity levels. Unlike Britain, however, practically every building has air-conditioning and it’s often set at arctic levels which gobble electricity and add to the choking pollution now gripping Hong Kong. One reason that offices in particular are so heavily chilled is the bizarre colonial legacy of insisting that the appropriate attire for the conduct of business in the summer months is dark suits and ties. Other countries in the region allow business to be conducted in shirt sleeves but Hong Kong businessmen have been reluctant to relinquish their pinstripes.
Mounting concerns over energy wastage have persuaded Donald Tsang, the chief executive of the government, to do something really radical. He took off his bow tie and slung his jacket over his arm following a session in the legislature and declared that the civil service would take the lead in encouraging businessmen to venture out without their suits.
Mr Tsang also took a strong stand against the practice of having chauffeurs keep their engines idling while waiting for passengers. This means that the air-conditioning in the vehicles remains on and there is a seamless transition from chilled office to chilled car. I was impressed by the chief executive’s resolution until I happened to walk past Henry Tang’s car. Mr Tang was inside the building I was about to enter and his car’s engine was ticking over merrily. I asked his driver how long he had been waiting and he was about to reply when, rather too shrewdly for my liking, he said accusingly, ‘You’re not a journalist, are you?’ But the icy blast emanating from the car’s interior provided an eloquent answer to my question.
Harvey Nichols shoppers in London and elsewhere are for the most part blissfully unaware that the store’s owner is Hong Kong-based Dickson Poon. It used to be owned by Dickson Concepts, the listed public company he controls, but in 1999 — taking advantage of the depression induced by the Asian financial crisis — one of his private companies bought out the public company’s 50 per cent stake in Harvey Nichols and cobbled together a job-lot purchase from Dickson Concepts which included the Asian operations of the American designer Tommy Hilfiger and the Paris-based luxury goods maker ST Dupont. Shareholders of the listed company were paid a miserly £96 million for the lot. But Mr Poon staunchly declared he was doing them a favour.
The true extent of that ‘favour’ became clear the following year when he sold the freehold of the London Harvey Nichols store for a reported £850 million. Now he’s offering to sell back to the public company the Tommy Hilfiger assets he acquired in the job-lot sale. Shareholders are being asked to cough up some £27 million to take Tommy Hilfiger off his hands. Yet again Mr Poon says he is doing the deal to help his shareholders. But there is some suspicion that he needs the cash to help bail out the ailing ST Dupont, which was the third element in the 1999 sale.
Mr Poon is not renowned for being the best friend of his minority shareholders. But his habit of shuffling assets between his private and public companies is hardly uncommon in Hong Kong, where the term ‘conflict of interest’ is regarded by many public company directors as some kind of dubious foreign dish — best left for buttoned-down American investment bankers to chew on.
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