The Taxation Institute of Hong Kong (TIHK) on Tuesday appealed for improvements to the city’s tax policies to bolster peoples’ livelihoods, including a reduction in income tax for middle class employees and the waiving of stamp duty for first time home buyers, ahead of the 2025-2026 Budget, which is scheduled to be announced on February 26.

Executives of the institution, which studies Hong Kong’s tax environment, said the two measures are crucial for the city to align with the “ability to pay” principle and to alleviate the cost-of-living burden caused by high property prices.

“As a two-tiered profits tax system has been implemented from year of assessment 2018 to 2019, to lower the tax burden of corporations and unincorporated businesses (in particular small and medium-sized enterprises) in Hong Kong, we consider that the income tax burden on individual employees in the middle class subject to the progressive rates should be reduced as well,” said TIHK Council Member Desmond Wong.

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“At the same time, the government can consider increasing the standard tax rate applicable to high-income people,” he added.

The TIHK proposed lowering the top marginal rate for income tax from 17 percent to 16 percent and increasing the standard tax rate applicable to net income above HK$5 million each tax year from 16 percent to 17 percent.

The suggestions come as Hong Kong grapples with weakening economic growth dragged down by geopolitical tensions, slower mainland economic growth and an increasing number of locals traveling to the mainland to shop. According to the government’s advance estimates, the city’s economy expanded by 2.5 percent in 2024, down from 3.2 percent the previous earlier.

Hong Kong’s property market has also suffered. Potential property buyers remain conservative over purchases due to high interest rates, despite the government scrapping housing restriction measures early last year. Home prices in Hong Kong dropped 7.1 percent year-on-year in 2024, statistics from the Rating and Valuation Department show. Interest rate cuts by the United States in the second half of 2024 could create a silver lining for the sector though.

To shore up the property market, the TIHK proposed that ad valorem stamp duty on transfer of residential property be waived for first time home buyers after meeting certain conditions, including a cap of HK$6.5 million on the market value of the property and a requirement to live in it for a continuous period of three years.

Although land sales and stamp duty are among the main sources of government revenue, Wong said this kind of tax reduction could be balanced by raising consumption tax rates. “This requires further research,” he said.

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Other areas the institute’s proposals focus on include maintaining Hong Kong’s competitiveness amid the evolving international tax landscape; capitalizing on opportunities from emerging markets through closer economic cooperation; fostering the development of strategically important sectors for Hong Kong; enhancing the competitiveness of the tax system by promoting greater fairness and certainty; broadening the tax base; and a comprehensive review of the tax system.

Contact the writer at thor_wu@chinadailyhk.com