Hong Kong Exchanges & Clearing Ltd. Shares plunged as the city unveiled its first increase to the stamp duty on stock trades since 1993.
The shares lost as much as 9.3% on Wednesday, the biggest decline since a bubble in China’s stock market was bursting in 2015. The Hong Kong Economic Times said in a since-deleted report that the duty would be raised to 0.13% from 0.1%. The news was widely circulated among the city’s trading desks, and came ahead of Financial Secretary Paul Chan later confirming the increase as he presented the city’s budget.
“The impact will be significant,” said Kingston Lin, managing director of the asset management department at Canfield Securities in Hong Kong, ahead of the announcement by the city. “The market is doing very well and of course it will bring more revenue to the government. But higher transaction costs will be a concern for the exchange.”
The government announced spending measures of more than HK$120 billion ($15.5 billion) to alleviate economic hardship for city residents after a two-year recession. At the same time, trading on the city’s exchange has boomed. In the 2019/20 fiscal year, the duty contributed HK$33.2 billion in revenue.
No such tax is collected in the U.S., Japan and Singapore, for example.
Hong Kong’s exchange on Wednesday reported that profit rose 23% to a record HK$11.5 billion in 2020, helped by a 60% jump in stock trading.
| Financial Year | Stock trading stamp duty (buy and sell) |
|---|---|
| 1993-98 | 0.15% |
| 1998-2000 | 0.125% |
| 2000-2001 | 0.1125% |
| 2001- now | 0.1% |
Frankie Yan, a spokesman for financial services at the Professional Commons and an SFC licensee, said the increase could bring in additional revenue of HK$10 billion to the government. But the cost on a HK$1 million trade would only be about HK$300, he said.
“Given the immaterial amount, it would not discourage investors’ intention on trading stocks,” he said.