GST for e-business

The following was proposed in the recent consultation document on GST from the HK gov:

(a) GST-registered businesses in Hong Kong making supplies of
goods, services or digitised products (e.g., downloaded software,
music or videos) ordered via the Internet and physically supplied to
or performed for local customers would be subject to GST;

(b) GST-registered businesses in Hong Kong making supplies of
goods, services or digitised products ordered via the Internet and
physically supplied to customers outside Hong Kong would be zero
rated under the export rules (see part (g) below);

(c) goods purchased via the Internet and imported into Hong Kong
would be subject to GST, if the value of the goods were in excess
of the exemption threshold for low-value cargo (proposed to be
$4,000)21;

(d) GST would not be payable on imported services or digitised
products that were purchased from a non-Hong Kong supplier, if
that supplier did not carry on a business in Hong Kong; and

(e) all transactions of immovable property in Hong Kong (if taxable)
would be subject to GST irrespective of where, or through what
means, these transactions were performed.

In general, the concept seems viable, and I do support exploring a GST structure which will allow for better allocation of resources by the government. That being said, the key issue is that it seems the government lack confidence from the people to execute well. Especially when the accountability to the general constituency is in question.

(d) above is also problematic. If I read it correctly, it means that imported digital goods and services are GST exempted. If that is the case, there is no reason why HK shops would not export its digital goods and then directly sell it from a foreign site (hence becoming a "foreign supplier"). The fact that these are virtual goods mean that there is essentially negligible transport cost.

Overall, the biggest probelm with the GST proposal is the lack of exploration of other options. With the incredible volume of treasury reserve in HK, there is some obligation to take a look at improving the ROI on capital revenues. The consultation paper completely ignored other ways to broaden the revenue base of the government and only provided a comparison of cutting personal allowances.

Furthermore, the premise for revenue-neutrality from tax is completely unacceptable. The aim should be to reduce overall tax! With the treasury reserve in HK, the outlook for the economy, the government should have the ability to run a deficit budget (that is very different than a budget deficit) and utilize some of its capital leverage. With GST, there should be room to reduce income taxes even further than suggested so that there is a net reduction in taxation from the people.

Again, I support exploring GST, but with the few fundamental issues and lack of analysis, it will probably need serious work before any progress could be seen.