Farmers looking for their balls.

On April 26, 2007, Jane Moir reported that the abolition of HK estate duty abolition appears to boost mutual fund sales by 72% to US$24.3b last year. Total assets under management of all authorised funds grew 36% to US$91 billion. Its registered hedge funds gres 60% to US$1.66 billion.

Is it conclusive that there a direct correlation between estate duty abolition and the sudden jump in mutual fund sales? If the correlation is real, should Singapore therefore give up its estate duty collection for the greater good of its financial sector?

The abolition of the tax in Feb 2005 (after 90 years) is estimated to cost Hong Kong HK$1.5 billion (SGD$300 million). [In Singapore, the tax contributed about SGD$80 million last year.]

Let us see how Financial Secretary Henry Tang justify the move to the Legislative Council.

He agreed that it is hard to say how much of the rise was sparked by the abolition of estate duty. But in the same breadth, he told the Legislative Council during a question and answer session,

‘The industry generally agrees that the abolition of estate duty has generated a positive impact and is conducive to the long-term development of our asset management business and the financial sector as a whole. We also understand from the banking trade that many private banking clients have relocated their overseas assets back to Hong Kong after the abolition.”

Lawmaker Jeffrey Lam Kin-Fung sought reassurance that policymakers are recovering the lost revenue elsewhere when he asked, “How did the general public benefit from the abolition?”

Mr Tang replied – “In 2006-07 our revenue from stamp duty in stock transactions increased by 80 per cent’ to HK$15 billion.”

Another law-maker, Alan Leong Kah-Sit, asked – “I would like to know how the Financial Secretary can prove that these growth figures are a result of estate duty (abolition)?”

Mr Tang replied – “We cannot ask every investor if they invested into Hong Kong because of the abolition of estate duty or other reasons. Of course, every now and then we meet members of the financial services sector and hear their views and suggestions.”

My view
Could the charging bulls of mainland China bourses have contributed to the billions of dollars entering Hong Kong? I really doubt the abolition of the estate duty could fully explain the rapid growth in fund management industry in Hong Kong.

A quiet moment.

Background
Currently CCDG is seeking comment on the proposed SME FRS.

Discussion
Referring to a news article in BT Weekend dated May 19-20, 2007, here are the views of Mr Kon Yin Tong, an ICPAS council member, on the proposed SME FRS.

The proposed change is expected to reduce the existing volume of accounting requirements for SMEs by more than 85%.

This is no good as it would cause problems for USERS of financial information such as tax authorities and lenders. [Why? I wonder.]

He opined that given the different standards and thus different profit definition would result in creating more work for the tax authorities to determine taxable income. [So?] For the lenders, the bankers would be in a mess assessing creditworthiness. [Huh?]

Is he implying that the tax authorities and lenders, given their massive resources, will not be able to sort out their resources to meet the challenge? Instead the burden of reporting under the full FRSs be continued to dwell on the shoulders of plumbers, electricians, small retailers, traders.. who are toiling in increasingly demanding business landscape.

Mr Kon also highlighted the difficulty of SMEs presenting their financials should they decide to go public. [Huh?] If my humble company were to aspire to go public, I would have planned for it. And overcoming the reporting shortfall, if any, would be a lovely problem to solve. But the reality is that those SMEs without such aspiration would far outnumber those with aspiration to go public.

In my humble opinion, I believe the economic benefits derived from the proposed move would outweigh the costs.