Calls for Reduction or Exemption of Stamp Duty on Securities Transactions
There has been a growing demand in the market for proposals to reduce or exempt stamp duty on securities transactions. The Chief Executive of the Hong Kong Special Administrative Region, Lee Kar-chao, is currently accepting public consultation on the second Policy Address of his tenure. In response, the Hong Kong Securities and Futures Professionals Association has requested the cancellation of stamp duty on Hong Kong stocks.
Brokerage institutions have also recently expressed their support for lowering the stamp duty on securities transactions in the A-share market. They believe that this policy change would have significant importance in activating the stock market, boosting confidence, and increasing enthusiasm in the short term.
Several market analysts have pointed out that there is a clear necessity and room for adjusting the stamp duty on securities transactions. They argue that reducing or exempting stamp duty would reduce transaction costs and activate the capital market. In addition, the Ministry of Finance has revealed that stamp duty on securities transactions accounts for less than 1% of national fiscal revenue on average over the past 10 years, indicating that reducing or exempting stamp duty would have little negative impact on finances.
The exact degree to which the stamp duty on securities transactions should be adjusted is still under debate. Analysts suggest that it could be halved or even canceled altogether. However, striking the right balance between fiscal revenue and the capital market is crucial and requires comprehensive consideration.
The reduction of stamp duty has also been proposed as a means to activate the capital market and boost investor confidence by various market players. Tebon Securities, for example, stated in a recent research report that reducing stamp duty would have short-term effects on boosting market sentiment, but its symbolic significance outweighs its financial implications.
The stamp tax on A-share securities transactions has been adjusted several times since 1990. Currently, sellers are charged at a rate of 1‰. Ye Xiaojie, director of the finance department of the Shanghai National Accounting Institute, supports adjusting the stamp duty, stating that it would help reduce transaction costs for investors and enhance their sense of gain, ultimately improving market liquidity.
Previous adjustments to the stamp duty rate have provided immediate boosts to market confidence and transaction activity in the short term. According to the analysis of Galaxy Securities Research Report, the reduction of stamp duty reduces investor costs and promotes market transaction scale. This has led to significant increases in trading volumes in the past.
While reducing stamp duty on securities transactions can activate the market and boost confidence, some experts caution that its long-term effect on market growth may be limited. They propose focusing on introducing more incremental funds, controlling excessive financing, improving the performance of listed companies, and better returns for investors.
In the first half of 2023, stamp tax revenue from securities transactions accounted for 1.11% of tax revenue and 0.93% of fiscal revenue. Given these figures, the impact of reducing stamp duty on overall state finances is relatively small. However, the precise range of the reduction is still a topic of discussion.
Overall, market players and analysts believe that reducing or exempting stamp duty on securities transactions can have positive effects on the capital market, boosting investor confidence and transaction activity in the short term. However, striking a balance between fiscal revenue and the market’s needs is crucial in determining the appropriate adjustments to the stamp duty rate.