HK’s finance minister maintains tax, fee increases for car owners aimed at curbing congestion, not generating revenue

27-Feb-2021 Intellasia | South China Morning Post | 5:02 AM Print This Post

Hong Kong’s finance minister on Thursday dismissed suggestions that hefty increases in taxes and fees for private vehicles owners were aimed at easing the government’s cash crunch, insisting the measures were taken to curb traffic congestion.

Financial Secretary Paul Chan Mo-po said increasing the first registration tax and annual licence fees for private cars by 15 and 30 per cent, respectively, was done to rein in the number of cars on the road, rather than generate fresh revenue. The measures were announced in Chan’s annual budget address on Wednesday, taking effect immediately.

“For the vehicle licence fees, they were adjusted for the first time in 30 years. It seems like the increase of 30 per cent is a lot, but in fact, during the past 30 years, the cumulative inflation is much more than that,” Chan told a radio programme.

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The first registration tax was last adjusted in 2011.

The government’s fiscal reserves have dropped substantially over the past two years, from the equivalent of 23 months’ worth of government expenditure, to just 13 months’ worth or an estimated of HK$902.7 billion by the end of March.

The new increase in the first registration tax is actually expected to incur a loss of about HK$309 million in government revenue each year, as fewer people are expected to buy new vehicles.

However, the spike in vehicle licence fees is expected to more than make up for that loss, generating an additional HK$930 million a year for the government on top of current revenue.

But Chan on Thursday maintained that both measures were aimed at relieving traffic congestion, not lining the government’s coffers.

“For tackling traffic congestion, we believe that slowing down the increase in vehicles is one of the ways,” he said.

“For the 15 per cent increase in the first registration tax for private cars, based on our past experience, the tax measure will inhibit the growth in the number of new cars in a short period of time.”

There were some 570,000 private vehicles in the city as of the end of last year. The number of first registrations shrank three years in a row from 2017 to 2020, and was down 3.3 per cent last year from 2019.

The new increases, effective from 11am on Wednesday, pushed the first registration tax for newly purchased private cars to 46 per cent of the first HK$150,000 of the vehicle’s taxable value, 86 per cent of next HK$150,000, 115 per cent of the next HK$200,000, and 132 per cent for any remaining taxable value.

For existing private cars, annual licence fees rose by 30 per cent to anywhere between HK$5,074 and HK$16,592, depending on the vehicle’s engine capacity. For electric cars, the base licence fee increased to HK$572 for the first tonne of unladen weight. The fee for each additional 250kg will remain at HK$124.

To offset the tax burden on electric vehicles, the tax rebate for private buyers under the “one-for-one replacement” scheme was raised to HK$287,500, up from HK$250,000, but the discount for such cars’ first registration tax payment remained capped at HK$97,500. The government said the balancing act would enable it to continue to promote the use of electric vehicles.

Ringo Lee Yiu-pui, president of the Hong Kong Automobile Association, said the measures were definitely a blow for the sale and distribution of new cars. “On the contrary, the measures might stimulate more transactions in the second-hand car market,” he said.

Alan Tang, who owns car trading firm Tai Loi Motors, expected higher demand for electric vehicles, as well more activity on the used-car market.

“The measures will add to the burden on the middle class, and why now? he asked. “The motor industry like others is suffering during the recession.”

Quentin Cheng Hin-kei, from the Public Transport Research Team, a concern group for commuters, said the tax increase was the right move for curbing the number of private cars on the road, but believed officials had an ulterior motive.

“The government should have done it a long time ago to inhibit the growth in the number of private cars,” he said.

“But I think this is only the government’s excuse for getting more income from taxpayers. This gives the public a bad impression that the government is targeting the car owners.”

Cheng said the number of private cars in Hong Kong had increased rapidly, citing figures showing a 35 per cent rise, from 380,000 in 2003 to 510,000 in 2013.

“Although the growth rate of the number of private cars has slowed down over the past five years, this is still a problem waiting to be tackled,” he said.

While supportive of the move, Cheng said the timing was tough for car owners, with many of them suffering pay or job cuts during the economic ravages of the Covid-19 pandemic.

“Many car owners are actually employees who need a car for commuting or work. Now that the government has imposed hefty tax and licence fee increases on their private vehicles, it seems ruthless to these people,” he said.

He suggested the government improved public transport services to reduce the public’s reliance on private vehicles.

“From 2003 to 2019, there was only an increase of 100 public buses. If the government hopes to curb the number of private cars on the road, it should ensure adequate supply of public transport service,” he said.


Category: Hong Kong

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