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Last Updated: Tuesday, 5 December 2006, 09:37 GMT
Hong Kong drops sales tax plans
Star Ferry terminal, Hong Kong harbour
Hong Kong has one of the lowest tax regimes in the world
The Hong Kong government has dropped plans to introduce a new sales tax in the face of public opposition.

It had hoped that a goods and sales tax (GST) would bring in an extra $3.8bn (1.9bn) in revenues to boost the city's public services budget.

Hong Kong currently has one of the world's lowest tax regimes, with a 16% personal rate and 17.5% for businesses.

Critics said a new sales tax would hit lower income groups disproportionately and could also hurt tourism.

Budget deficits

The government had held a nine-month consultation on the planned tax reform.

It has said that the territory needs to boost its sources of public revenues in order to cope with the welfare burden of an ageing population and any potential economic downturns.

The city ran up large deficits in the late 1990s after the Asian financial crisis.

"Although the public understands that GST can broaden our tax base, it is clear from the views collected that we have not been able to convince the majority to accept GST as the main option to address the tax base problem," said Financial Secretary Henry Tang.

At the moment only 35% of Hong Kong wage earners pay income tax, and the government has previously suggested that it could look at reducing personal allowances to get more people into the tax net.

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