More than 120 countries have imposed Goods and Services Tax, the only developed country that has not imposed this tax is Hong Kong. VAT or GST has been introduced by France in 1954(Ministry of Economy, Finance and Industry).
All the developed countries (except Hong Kong) and most of thedeveloping countries have followed France in imposing VAT/GST becausethis tax is considered: 1- Fair: VAT/GST is considered a fair tax because it relates theamount of collected tax to the amount of consumption; the more you consume, the more you pay VAT. 2- Simplicity: unlike any other taxes, VAT/GST is considered a straightforward tax; it is imposed according to a known percentage onthe value of the products and services 3- Efficiency: this tax is very efficient, it is very easy to collect it and it is very difficult to avoid it.
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The purpose of this research is to find out whether VAT/GST is a suitable tax for Hong Kong or not. The research has covered very large material and literature about Hong Kong and similar economies to Hong Kong such as Singapore. The research also aimed to show that most of the governments of theworld are broadening their budgets by imposing VAT/GST on customers while they are trying to reduce income and corporate taxes.
The research has covered a large part of literature publishedby global accredited organizations such as Price Waterhouse coopers,Ernest Young and the government of Hong Kong. The major text books have been used to give us a broad idea about the issue in research while the specialized working papers, Internet articles and government websites have been used in order to give us a clear idea about the issue in research. The research consulted working papers published by several universities and bodies in order to explain the theoretical principles behind imposing VAT/GST (Hubbard,G,R(1997)and the impact of VAT/GST on theinformal sector in developed countries.
We can see from the above chart the deficit that have faced HongKong from 1997 until 2003, the revenue was very low compared to thespending which proved to be steady. ”During the same year, about 70% of the total revenue collected by the Inland Revenue Department came from profits tax and salaries tax.Nevertheless, the profits and salaries tax nets are very narrow andshrinking. Less than 40% of our workforce of 3.2 million people pay anysalaries tax, and only 10,000 people pay the maximum salaries tax rateof 15%. About 5% of the payers of profits tax contribute to 80% of the profits tax revenue. Further loss of profits could occur as a result of globalisation. Besides, the spread of e-commerce will have implications on all governments’
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