Stamp duty rise on stock transactions a price worth paying
- Move criticised by some Hong Kong lawmakers will add new revenue at a time of record deficits, be a direct tax on the rich, and may also help lower market volatility
If you listen to some local stock brokers, traders and their representatives in the Legislative Council, it’s the end of the world.
“It is killing the goose that lays the golden egg.” “Hong Kong’s equity market will wither.” Nothing of the sort will happen; quite the opposite.
In fact, in the lacklustre budget speech delivered by Financial Secretary Paul Chan Mo-po, raising the stamp duty for stock trading is rather inspired. The increase of almost 30 per cent may sound big on paper, but it only seems so because it’s the first rise since 1993.
It will add new revenue at a time of record deficits; it’s a direct tax on the rich; and by increasing transaction cost, it may also help lower market volatility by targeting rapid speculative and algorithmic or computer-driven trades. What’s not to like?
The duty on any trade will rise to 0.13 per cent for both the buyer and seller, from 0.1 per cent, or a total of 0.26 per cent for a transaction. That translates to an extra HK$600 to the current HK$2,000 – for a total of HK$2,600 – for HK$1 million worth of stocks being traded.
Perhaps the only ones truly impacted will be small and independent brokers. But their business has been living on borrowed time by relying on retail investors who make up most of their clients. It’s a low margins business and the writing has been on the wall for some time now.
At a time when the city is facing a record deficit of HK$257.6 billion, adding an estimated HK$12 billion a year in new revenue to the government’s coffers is nothing to sneeze at.
Hong Kong’s status as a financial centre will not be affected. Foreign investors in search of yield and the China opportunity have been flooding capital into the local and mainland markets.
The trade flow is especially facilitated by the cross-border, two-way Stock Connect scheme. Professional traders and big fund houses will just absorb the new cost.
It’s estimated that about 20 per cent of all stock transactions in Hong Kong are driven by computers. As there are few so-called circuit breakers installed in the local market, such technology-driven trade can exacerbate market volatility.
The stamp duty rise may actually have a stabilising effect on such high-volume speculative trades by making them more costly.
There is no doubt it’s a tax increase, but a progressive one in a city notorious for its low tax regime, including the absence of a capital gains tax. Only people with assets will be affected.
But even retail investors will end up paying only hundreds or thousands of extra dollars a year, well affordable in the current bull market.
The stamp duty rise is a well thought-out plan deserving support.
