Hong Kong remains an attractive place for the shipping industry to prosper even as the US suspension of a 1989 bilateral shipping tax agreement triggered another challenge to the port’s weakening role in the region.
The city will be able to support the sustainable development of the maritime industry, the Transport and Housing Bureau said in an email reply to the Post. The government has criticised the US unilateral move earlier this month as a lose-lose proposition for both parties.
“With the strong institutional advantages of a competitive tax system that is simple with low tax rates, a business-friendly environment, a level-playing field, and a host of high-quality maritime services on offer, Hong Kong will remain an attractive place to do business,” the bureau said.
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While officials and analysts have downplayed the issue as a “limited impact” event, the city can do without the irritant. Hong Kong has slipped down the pecking order among the world’s busiest ports over the years, losing two notches in 2019 to eighth, according to industry data.
The US suspended the reciprocal tax exemption agreement with Hong Kong on shipping last week, which allows companies to avoid double taxation on shipping income.
The move formed part of the US decision last month to end the city’s trade privileges under the Hong Kong Policy Act of 1992, after Beijing imposed the controversial national security law on Hong Kong on June 30. The US also sanctioned several top city and mainland officials, including Chief Executive Carrie Lam Cheng Yuet-ngor for allegedly suppressing Hong Kong freedoms.
Transport income from the US shore is 4 per cent of gross income, while the profit tax on calling Hong Kong ports is 16.5 per cent, depending on the frequency of visits, according to Kathy Kun Chau-ying, a senior manager for Hong Kong’s national tax at EY.
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“If the agreement is cancelled, it will increase operating costs of shipping companies,” said Maggie Wang, a transport analyst in Hong Kong at Bocom International Securities. “The 4 per cent tax rate that will be charged by the US for Hong Kong ships is not very high, so the impact is limited on shipping companies and Hong Kong in itself.”
Cosco Shipping International, a unit of the world’s third largest carrier, said on Thursday that the impact is minor in a call on its interim results in 2020.
“The impact of trade frictions and [the suspension of] Hong Kong taxation [agreement] in fact created relatively big shocks to the shipping industry in the early stage,” it said. “But the recovery of cross-ocean routes, no matter the freight rate or trading volume, is relatively rapid based on the current situation.”
Cosco does not have corresponding ports where it has controlling ownership in the Americas or North America, “so it’s impact is relatively minor to our company’s businesses,” it said.
Wang of Bocom added that scrapping the tax deal would hurt American shipping lines more than the city’s home-port carriers, echoing the Hong Kong government’s view.
US companies would need to pay taxes to both the American and Hong Kong governments for shipping operations between the two places, the transport bureau said. Hong Kong’s shipping income is exempted from local tax liability, it added.
“The government’s efforts in promoting the high value-added maritime services should be conducive to fostering the sustainable development of the maritime industry as a whole,” the bureau added. It cited recently enacted tax incentives for ship leasing and marine insurance as examples.
More from South China Morning Post:
- Washington’s suspension of US-Hong Kong reciprocal tax exemption deal for shippers a ‘lose-lose situation’, experts warn
- National security law: US stands to lose just as much or even more by suspending three bilateral treaties, Hong Kong warns
This article Hong Kong says shipping to prosper even as US bilateral tax suspension triggers new challenges to port first appeared on South China Morning Post