HongKong

HK stamp duty: hardly taxing


Talk of going for the jugular. Hong Kong’s decision to raise stamp duty on share dealing takes a swipe at one of the few arteries where abundant cash continues to flow. US-China tensions dented trade. The publishing of an authoritarian national security law, and subsequent arrests of pro-democracy activists, spooked business. Tourism and retail, already stunted by protests, was kneecapped by the pandemic.

Hong Kong, like almost every government on the planet, needs the cash. It is staring at a HK$257.6bn ($33bn) deficit this year. Unlike most, it normally runs a tight ship: light taxation on people and businesses is mirrored by light welfare payments. Also unusually, it can tap the territory’s highly priced real estate market, both via sales of its land bank and levies on property transactions. No surprise that Hong Kong generally can balance its books. The last slide into the red was in 2004, in the wake of the Sars epidemic.

The proposed increase, outlined in Wednesday’s budget, will lift stamp duty on share sales from 0.1 to 0.13 per cent of the transaction value. This should raise HK$12bn. That would cover, say, the $9.5bn payment into the Innovation and Technology Fund — the government’s faltering bid to stimulate a homegrown Silicon Valley — and sprucing up country parks, football pitches and hiking trails, with change left over.

The government’s gamble is that a rise in transacting costs will raise money without taking any steam out of the gung-ho stock market. Hong Kong’s Hang Seng index is up by more than a third from the March lows; the monopolistic Hong Kong stock exchange garnered HK$3.4bn in fees on equity trading last year, more than half as much again as the previous year. Cash equities (and any related data) made up about 30 per cent of 2020 ebitda.

Thus, it is a calculated risk. HKEX shares tumbled on Wednesday and the broader market dropped 3 per cent. But that is a knee-jerk reaction: paying an extra $30 on a $100,000 lot of shares is hardly a deterrent, even in a market renowned for its retail participation. True, the rate compares unfavourably with Singapore and the US, the only market bigger than Hong Kong. Neither exact a levy. But HK is hardly soaring above global norms; the UK charges 0.5 per cent. Also, Hong Kong has no capital gains tax.

For sure, there are plenty of reasons to avoid Hong Kong stocks. This is not one of them.

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