Fair tax: Chief Executive Donald Tsang says the Government should never refrain from doing the right thing even though it may be unpopular.

Of all the options considered, the Administration believes the introduction of a Goods and Services Tax is the most practical to ensure a stable source of public revenue, Chief Executive Donald Tsang says.

Speaking after the Executive Council meeting today, Mr Tsang said he understands that widening the tax net and broadening the tax base will never be universally welcomed, but he is also convinced the Government should never refrain from doing the right thing even though it is unpopular.

He said good medicine often comes as a bitter pill and the public generally has reservations about the proposal of a GST.

"Evasion is never a way out. We have a responsibility to seek the best solutions to issues that Hong Kong is facing," he said.

As an externally oriented economy, Hong Kong is vulnerable to external influences, including surging oil prices and economic volatilities among its major trading partners.

In addition, the population is ageing rapidly. One of every eight people in Hong Kong is aged 65 or above. In 25 years, about a quarter of the population will be senior citizens.

Ageing population will trigger drop in salaries tax

"Given that salaries tax now accounts for nearly a third of total tax revenue, the ageing population will not only mean much fewer salary taxpayers, but also a drastic rise in demand for healthcare and social services," Mr Tsang said.

Education, social welfare and medical services have accounted for about 60% of all public expenditure, Mr Tsang noted, adding spending in these areas cannot be trimmed substantially even in economic downturns.

He said the Government will continue to explain the initiative to the community, including the compensation packages for low-income and CSSA households and proposals on how the revenue generated can best be used.

"On the issues of broadening our tax base, maintaining a stable tax revenue and the introduction of a GST, the Government will keep an open mind to listen carefully to the views and proposals of all sectors of the community."