A ferry boat sails across the Victoria Harbour on September 7, 2023. (SHAMIM ASHRAF / CHINA DAILY)

The Taxation Institute of Hong Kong expects the Hong Kong Special Administrative Region to record a budget deficit of HK$120 billion ($15.34 billion) for financial year 2023-24, but is cautiously optimistic that the deficit will be reduced in the future when the Chinese mainland and Hong Kong economies improve.

“Amid the current situation with public finance and future economic challenges, we recommend the SAR government to focus on exploring how the tax base can be broadened, and review the tax regime comprehensively when announcing the Budget 2024-25,” the institute’s president, Carol Liu, said in a press conference on Thursday.

For broadening the tax base, the institute recommends that the government explore the feasibility of levying various new taxes, such as sales tax, capital gains tax, e-commerce tax or carbon tax

Liu added that Hong Kong’s economic development depends largely on the mainland’s performance. As the mainland economy gradually recovers, this should boost the city’s economy and help narrow the budget deficit, she added.

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Financial Secretary Paul Chan Mo-po said recently that the SAR may record a budget deficit of over HK$100 billion, well over his original estimate of HK$54.4 billion when he announced the Budget 2023-24 last February.

The government will unveil the new budget proposals on Feb 28.

“The budget deficit is larger than expected due to the smaller-than-expected stamp duty revenues and land premium income,” said Anita Tsang, the institute’s tax policy committee co-chairman. “Whether Hong Kong can achieve a balanced budget depends on the pace of economic recovery in Hong Kong, which hinges on the pace of the interest rate cuts in the United States, and the geopolitical risk level.”

For broadening the tax base, the institute recommends that the government explore the feasibility of levying various new taxes, such as sales tax, capital gains tax, e-commerce tax or carbon tax. “The major purpose of broadening the tax base is not solely for the purpose of raising the government revenue level, but also to enable government revenues to be less affected by economic cycles, and to diversify government revenue sources,” Tsang said.

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“Take sales tax as an example. We are not proposing the government levy this tax next year, but it should commence the relevant public consultation and education now,” Tsang said.