Speeches and Presentations




LCQ3: Measures to assist micro-enterprises and small and medium-sized enterprises

Following is a reply by the Secretary for Commerce and Economic Development, Mr Gregory So, to a question by Dr Hon Lam Tai-fai in the Legislative Council today (May 30):

Question:

At present, under the definition adopted by the SAR Government, a small and medium-sized enterprise (SME) is any manufacturing business which employs fewer than 100 persons in Hong Kong, or any non-manufacturing business which employs fewer than 50 persons in Hong Kong. With the development of the economy, quite a number of businesses in Hong Kong at present actually employ fewer than 10 persons, with some of them even employ one staff member only, and such companies are micro-enterprises. As these micro-enterprises will face declining business and increasing costs in times of economic downturn, they will bear the brunt of adversity and can hardly carry on their business. In this connection, will the Government inform this Council:

(a) of the criteria to which the Government has made reference in adopting the current definition of SMEs, and when it began using that definition; whether it will, in response to the economic conditions at present, review that definition and formulate afresh a definition for SMEs that suits the actual market conditions (including formulating a definition for micro-enterprises); if it will, of the details; if not, the reasons for that;

(b) whether it will compile statistics on the number of micro-enterprises in Hong Kong at present and seek to understand their modes of operation, so as to formulate a policy to provide micro-enterprises with more specific policy support (including assisting micro-enterprises in financing and market exploration); if it will, of the details; if not, the reasons for that; and

(c) whether it will consider introducing profits tax rates of different levels for micro-enterprises, SMEs and large enterprises (including setting a lower tax rate and offering more tax concessions for micro-enterprises); if it will, of the details; if not, the reasons for that?

Reply:

President,

My consolidated reply to the question asked by Dr Hon Lam Tai-fai is:

(a) and (b) At present, "small and medium-sized enterprises" (SMEs) refer to any manufacturing enterprises which employ fewer than 100 persons, or any non-manufacturing enterprises which employ fewer than 50 persons. The definition has been adopted since 1994. Defining SMEs by the number of employees is a practice adopted by many economies and effectively reflects the situation in Hong Kong. According to the above definition, there were about 300 000 SMEs in Hong Kong in 1994, accounting for more than 98 per cent of local enterprises, and around 89 per cent of the SMEs were enterprises with less than 10 employees, the so-called "micro-enterprises". By end of 2011, the situation was similar: the number of SMEs remained at about 300 000, which accounted for more than 98 per cent of the enterprises in Hong Kong, and around 90 per cent of the SMEs were enterprises with less than 10 employees. In other words, all along, most of the enterprises in Hong Kong have been employing less than 10 employees.

I wish to emphasise what is the most important is that the Government would carefully consider the target beneficiaries when devising support measures for our enterprises to ensure the adequacy and effectiveness of the assistance provided, and would not be bound by the existing definition of SMEs. For example, the target beneficiaries of the SME Financing Guarantee Scheme administered by the Hong Kong Mortgage Corporation Limited are not limited to those enterprises falling under the SMEs category. All enterprises which are registered under the Business Registration Ordinance, have business operations in Hong Kong and have been in business for at least one year on the date of guarantee application (except for listed companies, lending institutions and affiliates of lenders) are eligible to apply. In addition, for the Small Entrepreneur Research Assistance Programme under the Innovation and Technology Fund, an enterprise incorporated under the Companies Ordinance which is not a "large company" (Note 1) and has less than 100 employees in Hong Kong are eligible to apply.

Regarding the need to formulate a policy to provide more specific support measures to micro-enterprises, as I have mentioned above, it has been the case that most of the enterprises in Hong Kong employ less than 10 employees. The beneficiaries of our support measures for SMEs have therefore all along been mainly these micro-enterprises. For example, the SME Export Marketing Fund (EMF) administered by the Trade and Industry Department (TID) supports SMEs to participate in export promotion activities. The cumulative funding support for each SME is $150,000. The funding ceiling for micro-enterprises will not be lowered because of their smaller scale of operations. In fact, with the same amount of funding, the effectiveness of funding support provided to smaller-sized enterprises is relatively more significant. As at end April 2012, over 143 000 applications have been approved under the EMF, involving a total grant of around $2.13 billion. About 79 per cent of the approved applications come from enterprises with less than 10 employees. In addition, TID's SME Loan Guarantee Scheme (SGS) provides up to 50 per cent loan guarantee for approved loans taken out by SMEs and the maximum amount of loan guarantee for each SME is $6 million. As at end April 2012, over 25 300 applications have been approved under SGS, involving a total loan amount of around $38.2 billion. About 70 per cent of the approved applications come from enterprises with less than 10 employees. As shown in the above figures, the existing support measures for SMEs already cater for the needs of the smaller-sized enterprises, and provide them with appropriate assistance.

In our view, the current definition of SMEs effectively reflects the actual situation, and our support measures for SMEs are able to assist SMEs including the smaller-sized enterprises. In addition, a standing definition of SMEs could facilitate the monitoring of changes in the relevant situation. Hence, we do not consider it necessary to revise the definition of SMEs at this stage, including devising a definition of micro-enterprises. Nevertheless, we will, as in the past, remain vigilant on the changes in the market and review the various support measures for SMEs from time to time so as to meet their needs.

(c) The prevailing single profits tax rate has already reflected the fairness principle of "earning more, paying more; earning less, paying less". The profits tax rate of Hong Kong is also among the lowest in the world. In the year of assessment 2010-11, nearly 90 per cent of corporations (including SMEs) did not pay any tax. Only about 90 000 enterprises paid profits tax, of which the top 1 400 enterprises already contributed 69 per cent of corporate profits tax received. Introducing progressive profits tax rates would not only fail to benefit micro-enterprises and SMEs which do not have to pay tax, but would also further restrict the source of profits tax revenue to a handful of enterprises, making our tax revenue unstable.

Currently, all operating expenses and capital expenditure permitted by the law are deductible from chargeable profits. Providing additional tax concessions to SMEs only would violate the long-standing principle of neutrality in the tax regime and create loopholes for tax avoidance.

Besides, in the 2012-13 Budget, there was a series of measures proposed to help our enterprises reduce their operating costs, thereby providing support for enterprises in the face of the worsening external economic environment and enhancing their competitiveness.

Thank you, President.

Note 1: A "large company" generally means a company that meets one of the following criteria:
i. A publicly listed company;
ii. A positive cashflow generated from operating activities in the ordinary and usual course of business of at least HK$20 million in aggregate for the two most recent financial years; or
iii. Has a market cap (or company asset) of at least HK$100 million.

Wednesday, May 30, 2012

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