HONG KONG — Walk through Hong Kong's malls and you'll likely see South Korean housewives haggling over handbags, European yuppies slipping into new suits and Americans slurping up wonton soup.
The former British colony has long been a world-famous shoppers'paradise _ a great place for retail therapy. But some fear the golden credit-card-swiping days will soon end if the government pushes through a proposed 5 percent tax on goods and services.
It's already shaping up to be a big battle in one of the world's bastions of low-tax, freewheeling capitalism. Critics say the tax will scare away tourists and hurt the working poor, while officials say the levy is essential for the economy.
Although the government has just started seeking the public's opinion, thousands of anti-tax protesters have already been marching in the streets. It's been hotly debated in the editorial pages. And Finance Secretary Henry Tang _ one of the biggest boosters for the tax _ has seen his public confidence rating plunge.
Proposing the levy is a bold move because Hong Kongers absolutely hate taxes _ it's one of the main reasons why many of them live here. For decades, the bustling city has attracted thousands of migrants from the Communist mainland who fled political chaos, big government and piddly paychecks.
(Story continues below)
Hong Kong was allowed to stick to its low-tax, radical capitalist ways even after it returned to Chinese rule in 1997. Only one-third of Hong Kong's 3.4 million workers fork over a salary tax, the government says. Of those who pay, the top 100,000 earners contribute 60 percent of the money.
The tax system needs tweaking because it relies on a narrow revenue base that's extremely volatile, says Frederick Ma, the secretary for financial services and the treasury. Along with salary taxes, the government also makes money from levies on land, business profits and stamp duty.
There's a big problem with these revenue sources: they fluctuate wildly, Ma said. Over the past eight years, the land premium has swung from 5 billion Hong Kong dollars to 35 billion Hong Kong dollars _ a whopping 600 percent, Ma said. Profit taxes varied from 38 billion Hong Kong dollars to 71 billion Hong Kong dollars _ an 87 percent difference, he said.
"Such volatility makes it difficult to plan medium- to long-term public services,"Ma said.
One of the biggest proponents of the tax is Financial Secretary Tang, who recently tangled with Hong Kong's last British governor, Chris Patten, over the tax. While visiting on a book tour, Patten blasted the levy as"socially inequitable"_ an unfair burden on the poor.
About 3,000 people vented their anger last weekend by marching through central Hong Kong in a protest parade. Most of the demonstrators were retailers who complained the goods and services tax, or GST, would dampen consumer spending.
"GST will only worsen the inflationary pressures that businesses already face in the light of spiraling oil prices and other skyrocketing operating costs,"said Bankee Kwan Pak-hoo, chairman of the Hong Kong Retail Management Association.
But Stephen Cheung, an economics and finance professor at City University of Hong Kong, said retailers are upset about the government's proposal because it would make it harder to evade taxes.
Cheung said Hong Kong's top 800 companies _ or 1 percent of the registered businesses _ pay 60 percent of the profit taxes collected. Many of the rest cook their books and claim to be unprofitable and pay no taxes, he said.
"The sweet deal is over for them. That's why they protest in the street,"Cheung said.
He said that welfare families and the working poor won't be hurt because the proposed changes include tax refunds for them of 2,000 Hong Kong dollars ($253) to 3,000 Hong Kong dollars ($379) a year.
"The poor people haven't come out in the street because they know they'll be taken care of,"Cheung said.
Tax refunds are also being planned for tourists _ vital to the Hong Kong economy. Last year, 23 million tourists came and spent 105 billion Hong Kong dollars ($13 billion), the government said. About 27 million are expected this year, it said.
The government's plan allows for tourists to get a tax refund before they leave Hong Kong. The goods they buy will be sealed in transparent bags so they can prove they were purchased here.
But lawmaker Vincent Fang of the pro-business Liberal Party doubts tourists will want to mess with the hassle of seeking refunds, also offered in European countries. He says the tax will chase away tourists or discourage spending.
"Whenever I travel to Europe, I often don't stand in line to get the refund. My flight will be tight, or I just give up because the line is too long. It's really very annoying,"he said.
Fang sees no need for a new tax because the government traditionally has a budget surplus. He added that this is a terrible time to push for a tax.
"Rents are going up. People are worried about the economy in general,"he said."They're worried that the U.S. economy will go soft, leading to global recession. We really don't think this is the right time to introduce this tax."
Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
