Buying and selling tax hike gained’t hurt Hong Kong’s inventory market: Monetary secretary

Hong Kong’s plan to increase stamp duty on stock trading will not affect the competitiveness of the city’s financial markets, Finance Secretary Paul Chan told CNBC on Friday.

Chan said in his budget speech on Wednesday that the government would increase the stamp duty on publicly traded stocks from 0.1% to 0.13%. The announcement sparked a sell-off of shares in the operator of the city exchange and the broader Hong Kong market.

“The Hong Kong market has been doing very well, very active, the volume has increased quite a bit,” Chan told CNBC’s Emily Tan.

“Perhaps this is the time for us to increase stamp duty a bit, which will not affect our competitiveness, while also bringing extra revenue to the government at this point,” he added.

Signage for the Hong Kong Exchanges & Clearing Ltd. (HKEx) in Hong Kong

Justin Chin | Bloomberg | Getty Images

The finance secretary said the Hong Kong authorities have launched various initiatives in recent years to improve the competitiveness of the city’s stock market. This includes allowing dual-class stocks to be listed and US-listed Chinese companies to apply for secondary listing in Hong Kong, he said.

Hong Kong was one of the top listing markets in the world in 2020 as Chinese firms like e-commerce giant and gaming company NetEase raised funds through secondary listings.

A total of 132 initial public offerings valued at US $ 32.1 billion and 199 additional initial public offerings valued at US $ 62.9 billion were conducted on the city’s stock exchange last year. This emerges from data compiled by the consulting firm PwC.

Given this “robust” capital market activity, a Hong Kong stamp tax increase could offer “a quick fix” to increasing its tax revenue in the short term, said Stanley Ho, corporate tax adviser partner at KPMG China consulting firm.

“However, it is also important that Hong Kong’s capital markets remain competitive with global financial markets, many of which tend to lower or remove such tariffs,” Ho said in a statement following Chan’s budget speech.

Chan said he remained confident that Hong Kong was an international financial center.

He said the government is working to promote Hong Kong as a center for sustainable and environmentally friendly finance, develop the city’s bond markets and encourage more wealth management activities.

Speaking of the stock market sell-off following his announcement of the business tax hike, Chan said Hong Kong is not the only country that has seen a “downward revision” after an earlier attempt.

“So I wouldn’t care about temporary market fluctuations. We believe that we will continue to work hard to improve what our market has to offer in order to further improve the competitiveness and attractiveness of the Hong Kong market,” he said.

“We will continue to attract the inflow of international capital.”

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