The stamp duty rate on Hong Kong stocks will be officially implemented on August 1, 2021, and the stamp duty rate on stock transactions will be officially raised from 0.1% to 0.13%. The increase in stamp duty on Hong Kong stocks will have an impact on finance and the market.

Stamp duty adjustment officially landed

On February 24, the Financial Secretary of Hong Kong, Mr Paul Chan, said in his 2021 / 22 budget submitted to the Legislative Council that after fully considering the impact on the securities market and international competitiveness, he decided to increase the stamp duty on stocks from 0.1% to 0.13%.

On June 2, the Legislative Council of the Hong Kong Special Administrative region passed the Revenue (Stamp Duty) Bill 2021, implementing the decision in this year's Budget to increase the stamp duty on shares to 0.13%. The adjustment will take effect on August 1 this year.

On August 1, the stamp duty increase on the Hong Kong stock market was officially implemented, and the stamp duty rate on stock transactions was officially raised from 0.1% to 0.13%.

According to the announcement of the Stock Exchange of Hong Kong Limited (hereinafter referred to as the Stock Exchange) to increase the stamp duty on stock transactions, the stamp duty on stock transactions in the Hong Kong market will be charged at 0.1% of the transaction value from August 1, 2021, the SSE notice said. It will be increased to 0.13% of the transaction amount (rounded up to yuan, less than one yuan is counted as one yuan). In accordance with the relevant provisions of Article 76 of the measures for the implementation of the Shanghai-Hong Kong Stock Connect of the Shanghai Stock Exchange, investors shall pay the relevant fees in accordance with the relevant provisions of the Stock Exchange.

The Shenzhen Stock Exchange also issued a notice saying that with effect from August 1, 2021, the stamp duty rate on stock transactions in the Hong Kong market has been raised from 0.1% to 0.13%. In accordance with the relevant provisions of the Shenzhen Stock Exchange measures for the implementation of the Shenzhen-Hong Kong Stock Connect, investors who conduct Hong Kong Stock Connect transactions under the Shenzhen-Hong Kong Stock Connect shall pay relevant fees in accordance with the relevant regulations of the Stock Exchange market.

The increase in stamp duty on shares is the first time in nearly three decades. Prior to this, the stamp duty on Hong Kong shares was reduced three times in a row: from April 1, 1993 to March 31, 1998, the tax rate was 0.15%; on April 1, 1998, it was reduced to 0.125%; on April 7, 2001, it was again reduced to 0.1125%; and on September 1, 2001, it was further reduced to 0.1%.

The Financial impact of the increase in Stamp Duty on Hong Kong stocks

The so-called stamp duty on stock transactions is a cost in the trading of securities investors. in theory, an increase in the stamp duty rate will increase the transaction costs of Hong Kong stock investors and may have a certain impact on transaction activity. However, as far as revenue is concerned, stamp duty on Hong Kong shares plays a very prominent role.

According to Wind informationIn 2020, for example, the stamp duty revenue of the Hong Kong stock market reached 64.22 billion yuan, accounting for 10.96% of the fiscal revenue. in the year when the epidemic was raging, stamp duty contributed considerable government revenue, which is of great importance.。

It is estimated that the stamp duty rate will be increased by 0.13% from 0.1%. Calculated on the basis of the turnover in 2020, it will bring the Hong Kong government an additional HK $19.266 billion in incremental revenue, which is expected to exceed HK $20 billion in 2021, which will become an important means to ease the financial pressure.

The impact of the increase of Stamp Duty on Hong Kong Stock Market

After the announcement of the increase in stamp duty on stock transactions, there were concerns that the proposal would undermine the competitiveness of the stock market. The Secretary for Financial Services and the Treasury, Mr Hui Ching-Yu, said at that time thatA slight increase in stamp duty will not weaken the competitiveness of the stock market。

It is because the competitiveness of the local securities market is based on a sound system, including a mature financial infrastructure, excellent asset quality and increasingly close economic ties with the mainland market. Coupled with Hong Kong's free flow of capital, the rule of law and judicial system, as well as a regulatory system in line with international standards, these are unique and irreplaceable advantages.

Ray, an analyst at Fortune, said that the market experienced short-term fluctuations when the news of the stamp duty increase came out, and then the impact was quickly digested. Judging from the data in recent months, the trading activity of Hong Kong stocks has continued to increase, and the average daily trading volume has maintained an upward trend. At the same time, there are relatively scarce A-share assets in the Hong Kong stock market, which are more attractive to mainland funds, and the trend of allocating such scarce assets through the Hong Kong Stock Connect will not be changed by the increase in stamp duty.

Many brokerages have also given their own views.

Guotai Junan: after adjustmentThe performance-to-price ratio of core assets in Hong Kong stocks is more prominent.

Guotai Junan research said that the purpose of levying stamp duty is to avoid risks and maintain market stability, but the defect is to increase transaction costs. In view of enhancing the competitiveness of the financial industry, the reduction or abolition of stamp duty is the mainstream direction of overseas markets.

Typical cases of stamp duty increase can learn from A shares in 1997 and 2007, after the increase has a certain short-term disturbance to the market, the medium-and long-term negative impact dissipates, more attention should be paid to fundamentals and liquidity and other factors. In terms of styleThe impact is greater for small-cap stocks, but relatively small for large-cap stocks.。

The increase in stamp duty rate accounts for 27% of all transaction taxes and fees, but the unilateral real cost increases by only 0.03%.The impact is great for short-term high-frequency traders, but limited for long-term capital.. After adjustmentThe performance-to-price ratio of core assets in Hong Kong stocks is more prominent.。

Shen Wanhongyuan: the impact on institutional investors is relatively limited

According to Shen Wanhongyuan research, institutional transactions in the Hong Kong market account for nearly 80%, and institutional investors account for nearly 80% in the Hong Kong market, while passive investment and long-term investment are the mainstream for institutional investors to allocate Hong Kong stocks. Therefore, the impact of the increase in stock stamp duty on it is relatively limited.

It has a certain impact on high-frequency trading, but the impact on long-term capital is limited. For a HK $1 million transaction, bilateral transaction costs rise by only about HK $600 as a result of an increase in stamp duty on shares.

Everbright International: some short-term impact on high-frequency trading in Hong Kong stock market

According to the research point of view of Everbright International in March this year, stamp duty in Hong Kong has been adjusted several times since 1993, but the performance of the Hang Seng Index is different. this shows that the impact of stamp duty adjustment on market trends cannot be generalized.

Everbright International pointed out that the increase in stamp duty will indeed have a certain impact on the stock market in the short term. High-frequency trading in the Hong Kong stock market accounts for about 20% of the Hong Kong stock market. If the stamp duty is increased by 30%, the overall transaction cost will increase significantly for many short-term procedural transactions, and there will indeed be some impact in the short term.