Tapping into betting duties and heated tobacco products as alternative revenue streams

In times of trouble, the government should open its options and pursue new revenue streams instead of driving deficits.

The Hong Kong SAR government’s strategy of driving deficits is unnecessary when there are obvious revenue streams, such as betting duties and smoking alternatives, waiting to be tapped.

Financial Secretary Mr Paul Chan announced the Budget on Wednesday, including his plan to run Hong Kong’s biggest ever deficit as part of the Government’s plan to deal with the impact of the coronavirus outbreak and the months-long protests that have helped push the city into recession. 

The best laid plans…

The Financial Secretary said the government would have to pay more attention to financial sustainability and not spend beyond its means in the future. It is always arguable that hefty public expenditures are inevitable and the SAR Government must explore ways to generate more revenue to maintain its financial sustainability and spend as needed. 

According to the Budget, the government needs to study new sources of income and review tax rates. I directly asked Paul Chan, on RTHK’s Backchat Budget special, if he agreed that there was a need to levy a GST. He replied that he had reservations about the GST, and that it was a regressive tax. Therefore, the government’s options for increasing income are limited. In trying times, he should consider more creative measures.

Betting the budget on the ponies

Betting duty provides a stable source of revenue to the SAR Government, comprising 4.6 to 5.2 percent of annual government revenue from 2008 to 2018. The Hong Kong Jockey Club disbursed some HK$23.3 billion to the SAR Government in the form of betting duty and profits tax in its 2018-19 financial year, making it the largest single taxpayer in Hong Kong.

Increasing the betting duty would be an option for the SAR Government to consider in the 2020-21 Budget.  For example, HKJC began to manage the Mark Six lottery on behalf of the SAR Government in 1975. 25 percent of the proceeds is paid to the SAR Government as betting duty and another 15 percent goes to the government’s Lotteries Fund to finance social welfare projects. The net stake receipts from betting on horse races and football matches are also charged as betting duty.

Although Mark Six draws have been suspended since 1 February, people in Hong Kong would not mind an extra charge – and many may not even be aware of this hidden tax – when betting on Mark Six, horse racing or football matches.

Heat up, don’t burn up, new revenue sources

The government should allow and actively regulate heat-not-burn tobacco products as soon as possible. Levying taxes on these new products would redirect earnings for heat-not-burn tobacco sales from the black market into government coffers. 

There are currently 52 markets in the world that allow the sale of heated tobacco products. The market estimates that nearly 10 million smokers have switched from traditional cigarettes to heated cigarettes. Among them, Japan has standardised and taxed these products for five years. Nearly 70 percent of smokers abandoned traditional cigarettes and completely switched to heat-not-burn tobacco products. 

The introduction of these products to the market has not increased the overall smoking rate. Given that all tobacco products are regulated by the Dutiable Commodities Ordinance and the Smoking and Public Health Ordinance, proper regulation of alternative tobacco products would not be a difficult feat. Therefore, the government would be wise to profit off of the taxation of heated tobacco products.

Hong Kong must evolve to continue down a financially sustainable path. Tapping into betting duties and heat-not-burn tobacco products as alternative revenue streams offer creative solutions to the city’s burgeoning financial concerns.

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the author

Raymond Ho Man Kit is community activist, columnist and radio personality in Hong Kong. He has appeared in written and electronic media including Ming Pao and AM730 as a regular columnist and guest host on Metro Radio. He was a District Councillor representing Sai Kung residents from 2004 to 2019. He is the founder of Momentum 107, aka M107, an activist group and government watchdog holding the government to account for Article 107 of the Basic Law which states the HKSAR "shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product."