In the latest Legislative Council meeting, the Council passed the Inland Revenue and MPF Schemes Legislation (Tax Deductions for Annuity Premiums and MPF Voluntary Contributions) (Amendment) Bill 2018. The Bill will amend the Ordinance to encourage members of the public to purchase deferred annuities or make voluntary contributions to MPF through tax incentives. This article will focus on the latter.
According to the latest law, the tax deduction limit is set at $60,000. For example, a single person with monthly salary $60,000 can save up to $10,200 if he spends $60,000 on tax deductible voluntary contributions compared with those who do not join the new scheme. However, it is worth noting that the tax deductible voluntary contributions are subject to the preservation requirements. This means the fund cannot to be withdrawn until the members reach the age of sixty-five.
There is another core issue. Even if the new law are attractive, the contributor should first check if they have the substantial demand on additional contributions. Readers who are interested in participating in tax deductible voluntary contributions should first calculate their own needs for retirement.
It is true that in 2017, MPF contributions totaled nearly 68.99 billion, of which 3.46 billion were voluntary contributions. It is believed that the tax deductible scheme is attractive to some of current MPF members. The Government mentioned in the Legislative Council paper that it is difficult to assess how much tax will be reduced by the Government after new tax deduction. As the population of Hong Kong continues to age, the provision of economic incentives will enable the public to make voluntary savings at an early stage and prepare for retirement. This might alleviate the pressure on future welfare expenses.