Feeling the pain

Cultural courtesy in Hong Kong masks an interesting honesty when it comes to matters of tax and reputation.

Beside the main entrance to the modern building that houses the Hong Kong Inland Revenue Department is a floorplan – the Business Registration office, the Stamp office, the Enquiry Counter, the Torture Appeals board. I have seen revenue offices using many tactics to get the taxpayer’s attention, but I confess that having a torture division was new to me.

Also new to me was the open approach of the Hong Kong tax authorities to their position within the Hong Kong economy. I saw this open approach first hand recently at a meeting facilitated by our colleagues in the Hong Kong Institute of Certified Public Accountants. Hong Kong is not oblivious to the importance of international reputation, yet the tax authorities there seem clear that all this newfound concern for  the intenational tax playing field called Base Erosion and Profit Shifting (BEPS) is something to be noted, rather than slavishly followed up.

In contrast to the European Union, and therefore to the Irish approach, Hong Kong will fulfil only the minimum OECD (BEPS) multinational tax requirements. There is courtesy certainly, but no particular enthusiasm to cooperate with revenue authorities in other countries. The Hong Kong authorities see the tax system as a lever to migrate an economy whose fundamentals are currently import/export to a knowledge environment. Generous direct funding by the government on business incubators, on the acquisition of know-how, and on university start-ups is being matched by luxuriant research and development tax credits.

The Hong Kong authorities differ markedly in their forthright approach from the approach of many other European regulatory counterparts. Irish civil servants are more likely to nod politely and describe their role as policy-takers rather than policy-makers. Which approach is more correct?

One of the authors of Hong Kong’s economic success was Sir John Cowperthwaite, who was Financial Secretary in the 1960s. His policies were responsible, at least in part, for Irish people of a certain age (your correspondent included) thinking that everything plastic was made in Hong Kong. Cowperthwaite insisted that economic data relating to Hong Kong should not be published for fear that well-meaning but interfering businesses and officials alike would create havoc with interventionist initiatives. The market and common sense would ultimately sort 
everything out.

The man may have had a point. Look at the relative economic successes of the UK in the past two years. Was it despite or because of the political stagnation over Brexit, which resulted in little or no active management of the UK economy? Look at the situation in Ireland, where the combination of a minority government and a cabinet of ministers peculiarly disinterested in business matters still achieves embarrassingly large GDP growth. Northern Ireland muddles through without Stormont and thus, without political direction on its economy.

However, it is not all about economic success. There is another aspect of engagement by the private sector in economic decisions, and that is the democratic process. In a democracy, civil society should have a say in government decisions on economic issues. In jarring contrast to the openness of the dialogue with the Hong Kong authorities was the jailing there in April of political dissidents.

And what of the Torture Appeals board? I understand that it is not a subdivision of the Hong Kong Revenue at all. Rather, it is a separate agency that considers applications for political asylum by reason of the unfortunate person claiming to have suffered torture in their homeland. It shares its premises with the tax officials. The torture had nothing to do with tax after all. Apparently.

Dr Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.