SUPERNEWS

Equities

China Considers Tax Waiver for HK Connect, Aims to Boost Market

China considers tax exemption for HK Stock Connect investors to boost market, amid a 17% drop in trading volume.

By Athena Xu

ᐧ

5/9, 04:34 EDT
article-main-img

Key Takeaway

  • China considers waiving the 20% dividend tax for individual investors on HK stocks bought via Stock Connect, aiming to prevent double taxation.
  • The proposal is part of Hong Kong's efforts to revive its financial market, with plans to expand Stock Connect's scope within the year.
  • HKEX faces a downturn, with a 17% decrease in southbound trading volume and a 13% drop in Q1 profit, highlighting the need for market stimulation measures.

Tax Exemption Proposal

China is currently reviewing a proposal that could significantly impact investors in Hong Kong stocks. The plan, submitted by Hong Kong, suggests exempting individual investors from the 20% dividend tax on stocks purchased through the Stock Connect program, which links Hong Kong with Shanghai and Shenzhen. This initiative is under consideration by the China Securities Regulatory Commission (CSRC) and the State Taxation Administration, aiming to prevent double taxation and establish fairer conditions for investors in both regions. Notably, Hong Kong does not impose a dividend tax, highlighting the disparity the proposal seeks to address. However, authorities have not yet reached a final decision, and the timeline for implementation remains uncertain.

Market Revival Efforts

The backdrop to this proposal is Hong Kong's effort to rejuvenate its financial market, which has experienced a downturn in initial public offerings (IPOs) and trading volumes. The CSRC's recent measures to expand the Stock Connect's scope are part of these revival efforts. Julia Leung, the Chief Executive of Hong Kong's Securities and Futures Commission (SFC), mentioned plans to implement these changes within the year, signaling a proactive approach to enhancing market attractiveness and liquidity.

Trading Activity and Financial Performance

Trading activity through the southbound link of the Stock Connect has seen a decline, with an average daily trading volume of HK$31 billion in the first quarter, marking a 17% decrease from the previous year. This downturn is reflected in the Hong Kong Exchanges and Clearing Limited's (HKEX) financial performance, with a 13% year-on-year drop in first-quarter profit. The exchange's share price has also suffered, currently standing 53% lower than its early 2021 levels. These figures underscore the challenges facing Hong Kong's financial market and the urgency of implementing measures to stimulate recovery.

Management Quotes

  • Julia Leung, SFC Chief Executive:

    "Hong Kong is looking to implement the changes within this year."

  • Tim Lui, Hong Kong’s SFC Chairman:

    "[He] first made the suggestion to cut the dividend tax in March in his capacity as a delegate to China’s National People’s Congress. He also called on regulators to lower the investor threshold for the trading link to allow more participants."