Hong Kong’s First Trading Tax Hike Since 1993 Pummels Stocks

(Bloomberg) — Hong Kong unveiled its first stamp-duty increase on stock trades since 1993, sparking a broad selloff in the $7.6 trillion market and sending shares of the city’s exchange to their biggest plunge in more than five years.

The planned trading-tax increase to 0.13% from 0.10% was part of a raft of new measures announced in Hong Kong’s budget that included increased spending to help residents weather the pandemic. Even as the city’s economy has plunged over the past year, stock prices and turnover have surged amid a global market boom.

Hong Kong’s benchmark Hang Seng Index sank 2.6% at 1:41 p.m. local time, led by a 7.8% tumble in Hong Kong Exchanges & Clearing Ltd. The bourse operator was headed for its biggest slump since 2015, even after reporting record annual earnings on Wednesday.

“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.

The stamp-duty increase will help pay for the increased spending. In the 2019/20 fiscal year, the duty contributed HK$33.2 billion in revenue.

Hong Kong’s exchange said on Wednesday that profit rose 23% to a record HK$11.5 billion in 2020, helped by a 60% jump in stock trading.

“Whilst we are disappointed about the Government’s decision to raise stamp duty for stock transactions, we recognise that such a levy is an important source of Government revenue,” an exchange spokesperson said. “HKEX looks forward to continue working closely with all its stakeholders to drive the continued success, resiliency, vibrancy and attractiveness of Hong Kong’s capital markets.”

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.

(Updates with market moves from first paragraph.)

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