China’s recent announcement of a proposed tax cut on stock trading has exerted mounting pressure on Hong Kong to consider a similar move. This development places Hong Kong’s finance chief in a precarious position as the potential repercussions on government revenue come into focus.
Bankers and traders in Hong Kong have been advocating for a reduction in the tax levied on stock trading. Meanwhile, the Democratic Alliance for the Progress of Hong Kong (DAB), the largest political party in the region, has expressed concerns about the potential revenue loss that could result from such a tax cut. Currently, the government relies on income generated from stock trading for approximately 9% of its budget.
China’s proactive measures to bolster stock market trading have intensified the urgency for Hong Kong to formulate its own strategies aimed at stimulating trading activities and fostering initial public offerings (IPOs).
In response to these challenges, Hong Kong recently established a task force led by Carlson Tong, a former regulator and chairman of KPMG China. The task force includes executives from notable financial institutions such as Morgan Stanley, Citigroup, and CSOP Asset Management, among others. This task force is expected to convene regularly to craft an initial action plan within this month, ahead of the annual policy statement by Mr. John Lee, the Administrator of the Hong Kong Special Administrative Region, in October.
The catalyst for this debate can be traced back to China’s announcement on August 28th, when the government revealed its decision to reduce the stamp duty on stock trading for the first time since 2008. This move has sparked fervent discussions within Hong Kong’s financial circles. Investors who have been advocating for lower stock trading taxes have welcomed China’s decision.
It is worth noting that in 2021, Hong Kong had previously increased the stamp tax on stock trading. This prompted research conducted by the Hong Kong Financial Services Development Council (FSDC), which found that Hong Kong had become one of the costliest global financial centers for stock trading, second only to England. In contrast, major stock exchanges in countries like the United States and Japan do not impose taxes on stock trading.
The ongoing debate underscores the delicate balancing act Hong Kong faces as it contemplates aligning its tax policies with China’s guidelines while carefully considering the potential implications for government revenue and its position as a global financial hub.