According to today's report from Ming Pao, the central government may announce measures to benefit Hong Kong in the near future, and is expected to increase the current tax exemption for mainland visitors to Hong Kong from RMB 5,000 per trip. According to insiders in the Hong Kong political circle, because of the need to consider other provinces and cities in mainland China, it is believed that the increased tax exemption may be lower than RMB 30,000.

During this year's two sessions, many National People's Congress representatives and CPPCC members from Hong Kong proposed jointly to increase the tax exemption for mainland visitors to Hong Kong, from RMB 5,000 to RMB 30,000. Hong Kong Legislative Council member Siu Ka-ho believes that the tax exemption for mainland tourists has not been adjusted for many years, and that travelers will be more willing to shop after the increase, with the long-term expectation that it will eventually reach RMB 100,000, following Hainan.

It is worth noting that in April of this year, rumors were widespread in the industry that "relevant departments are considering exempting mainland individual investors from paying 20% income tax on dividends obtained from Hong Kong-listed companies through the Shenzhen-Hong Kong Stock Connect, to avoid the situation of dual taxation in mainland China and Hong Kong." Currently, some market insiders expect that the policy will be implemented when the July 1st approaches.

A good bullish rumor

According to Ming Pao, the central government will announce measures to benefit Hong Kong in the short term, and is expected to increase the current tax exemption for mainland visitors to Hong Kong from RMB 5,000 per trip. According to insiders in the political circle, because of the need to consider other provinces and cities in mainland China, it is believed that the increased tax exemption may be lower than RMB 30,000.

Chen Zhongni, a National People's Congress representative and member of the Democratic Alliance for the Betterment and Progress of Hong Kong, believes that the Hong Kong industry must improve after-sales service and other supporting services in order to compete with other places such as Hainan. Siu Ka-ho expects that electronic products such as phones and other high-value items will be more benefited.

The central government may announce measures to increase the tax exemption in the short term. Several National People's Congress representatives and CPPCC members evaluated that it is imperative to increase the tax exemption, but it may be difficult to significantly increase it at once. If a large number of mainland tourists come to Hong Kong for shopping, the central government must consider the impact on other provinces and cities in mainland China. In addition, if the tax exemption per trip is raised to RMB 30,000 without an upper limit, it may further erode mainland consumption power. The new tax exemption is expected to be lower than RMB 30,000.

Chen Zhongni believes that increasing the tax exemption will definitely help the local retail industry. However, mainland tourists have to pay for transportation and lodging when visiting Hong Kong. If the tax exemption ratio is not high, it may not necessarily be attractive. Siu Ka-ho believes that the tax exemption for mainland tourists has not been adjusted for many years, and that travelers will be more willing to shop after the increase, with the long-term expectation that it will eventually reach RMB 100,000, following Hainan. Leung Mei-fun, a member of the Basic Law Committee and Legislative Council member of the Economic Synergy, also believes that the consumption level of mainland visitors is high, and that even if the adjustment this time is not large, it is a "starting point". She believes that increasing the tax exemption is the right direction and hopes to gradually increase it in the future.

On June 3, Financial Secretary Paul Chan Mo-po of the Hong Kong government, attending a meeting of the Finance Committee of the Legislative Council, said that recent data showed that Hong Kong's economy has been generally positive, with an average of 113,000 visitors to Hong Kong per day in April, and a total of 766,000 mainland visitors to Hong Kong during the five-day Labor Day holiday, up 22% from the same period last year. In April, the overall value of exported goods rose significantly by 11.9% year-on-year. However, the total sales value of retail goods in April, which was announced a week earlier, fell significantly by 14.7% year-on year. Chan said at the time that the government was trying to increase the tax exemption for mainland visitors to Hong Kong, and was actively communicating with relevant departments of the central government to seek opportunities.

Another anticipation

In April of this year, rumors were circulating in the markets about "China is said to be considering exempting mainland individual investors from paying 20% income tax on dividends obtained from Hong Kong-listed companies through the Shenzhen-Hong Kong Stock Connect, to avoid the situation of dual taxation in mainland China and Hong Kong." On that day, the Hang Seng Dividend Index and the Hang Seng Red Chip ETF both experienced soaring prices. However, to date, this news has not been implemented.

This news is also the proposal put forward by Hong Kong during this year's two sessions. Chairman of the Securities and Futures Commission of Hong Kong, Carlson Tong, suggested lowering the tax on dividends for individual investors in the Stock Connect and lowering the entry criteria for mainland investors to the Stock Connect.

Under the current policy, H-share companies listed on the Hong Kong Stock Exchange will withhold individual income tax at a rate of 20% on the dividends obtained by individual mainland investors through the Shenzhen-Hong Kong Stock Connect; dividends obtained from non-H shares listed on the Hong Kong Stock Exchange will be withheld by China Clearing at a rate of 20% of individual income tax. Individual investors can apply for tax offset with the competent tax authorities of China Clearing for the pre-paid tax paid overseas. For red-chip stocks listed in Hong Kong, in addition to the 20% personal income tax in the Hong Kong Stock Connect mechanism, it also involves whether the company has announced the calculation of the 10% enterprise income tax on dividends.

It is estimated that the total amount of dividend tax collected through the Stock Connect mechanism is about HKD 45 billion per year. Assuming that the proportion of mainland individual investors' investment through the Stock Connect is about 1/4, it is expected that the potential adjustment will bring about a direct tax reduction of about HKD 10 billion per year.

CICC stated that if the tax reduction for Stock Connect dividends can be implemented, it is expected to further boost the investment enthusiasm of mainland investors in Hong Kong stocks, especially high-dividend related sectors, stimulating sentiment in the short term and helping to improve the liquidity of the Hong Kong stock market in a long term. Recently, the market also expects that this policy may be implemented when July 1st approaches.

Edited by Jeffrey