Analysts believe that there is a necessity and space for adjustment at present. China Central Radio and Television Network: The call for reducing stamp duty on securities trading is increasing. Stamp duty | Securities trading | Analysis

Recently, there has been a growing call in the market to propose reducing or exempting stamp duty on securities trading.

Recently, the Chief Executive of the Hong Kong Special Administrative Region, Li Jiachao, is receiving public consultation on his second Policy Address during his tenure. The Hong Kong Securities and Futures Association responded by demanding the revocation of the stamp duty on Hong Kong stocks.

At the same time, several securities firms have recently stated in their research reports that if the stamp duty on securities trading in the A-share market is reduced, the policy is of great symbolic significance and can play a role in revitalizing the stock market. In the short term, it can also boost confidence and enthusiasm in the stock market.

Several market analysts interviewed by the CCTV Capital Eye pointed out that there is currently a necessity and space to adjust the stamp duty on securities trading. On the one hand, reducing the stamp duty on securities trading can significantly reduce the trading costs of the stock market and activate the capital market. On the other hand, data from the Ministry of Finance shows that in the past 10 years, the average proportion of securities trading stamp duty revenue to national fiscal revenue has been less than 1%, and the negative impact of reducing stamp duty on fiscal revenue is minimal.

So, in the current situation, if the stamp duty on securities trading is adjusted downwards, what specific extent should it be? Analysts believe that it can be halved or cancelled directly. But this is related to the balance between fiscal revenue and the capital market, and requires comprehensive consideration.

What is the effect of tax reduction?

Since the central government announced on July 24th that it is necessary to activate the capital market and boost investor confidence, various market entities have provided suggestions and suggestions. Recently, there have been increasing voices suggesting a reduction in the stamp duty on securities trading.

For example, Debon Securities stated in a recent research report that with the continuous promotion of various policies in the "active capital market", reducing stamp duty is still a timely tool to be introduced in the trading side policy toolbox. Although the effect is focused on boosting short-term sentiment, the symbolic meaning of the policy it brings is greater than the loose meaning of the funding side.

Since 1990, the stamp duty on A-share securities trading has been raised twice and lowered seven times. Currently, it is unilaterally levied on sellers at a rate of 1 ‰.

Ye Xiaojie, Director of the Finance Department at Shanghai National Accounting College, told CCTV Capital Eye that there is indeed room and necessity to adjust the stamp duty on securities transactions at present. "In July, the central government proposed to 'activate the capital market and boost investor confidence', and lowering the stamp duty rate is conducive to reducing transaction costs for investors and enhancing their sense of gain, which is of positive significance for improving market liquidity." Ye Xiaojie said.

"From the effects of previous tax rate adjustments, the reduction of stamp duty has an immediate effect on boosting market confidence and trading activity in the short term." Xue Hongyan, Vice President of Xingtu Financial Research Institute, told China Central Television Capital Eye that current investors have strong expectations for the reduction of stamp duty. The reduction of stamp duty can comply with market expectations and is expected to significantly improve market sentiment and boost investor confidence.

"As stamp duty is collected during securities trading, canceling stamp duty can reduce the transaction costs of investors. Although the tax rate is not high and the tax burden is not heavy, the direct benefit after cancellation is for investors. This has a great promoting effect on enhancing their subconscious trading, increasing the buying and selling activity of the stock market, which is naturally beneficial to the stock market." Renowned financial and tax audit expert Liu Zhigeng told CCTV Capital Eye.

Xue Hongyan pointed out that since 2008, the commission rate for investor securities trading has been significantly reduced, with the mainstream commission rate dropping from around 1.5% to around 2.5%, while the stamp duty has remained at the level of 1% and has become the main source of securities trading costs. "At present, it is a general trend to reduce the stamp tax to reduce the cost of securities trading. If it is to be reduced sooner or later, the effect of the reduction will be better at present," Xue Hongyan said.

"Based on past experience, if the stamp duty is adjusted, it may have a more significant effect on activating the capital market," said Cheng Qiang, Chief Macro Analyst of CITIC Securities, in a research report.

After the last four stamp duty reductions, the trading volume of the Shanghai Composite Index increased by 71%, 98%, 114%, and 139% respectively during the week. According to the research report of Galaxy Securities, this is mainly because the decrease in stamp duty helps to reduce investor costs, thereby promoting market transaction volume. "The reduction of stamp duty will have a boosting effect on the capital market and boost the enthusiasm and confidence of the stock market in the short term," said Galaxy Securities.

"Lowering the stamp duty on securities trading can activate the market and boost confidence, which is very beneficial for the securities sector in the short term and can drive the index to rise." Xu Peng, deputy researcher at the China Institute of Macroeconomics, believes that at the same time, existing funds in the market may pile up to join the securities sector's game, leading to a "disguised bloodletting" of other sectors. Therefore, the so-called market trend is likely to be a structural trend, rather than a general rise in the entire market.

"In fact, the effect of reducing stamp duty on the long-term healthy growth of the market may be limited." Xu Peng emphasized that compared to reducing stamp duty, it is more important to introduce more incremental funds, especially medium - and long-term funds, to control excessive financing, reduce holdings and other 'blood sucking phenomena', and effectively improve the performance of listed companies to better return to investors.

According to a research report by Debon Securities, a review of seven instances of stamp duty rate reductions reveals that the rate cuts have a certain boosting effect on the market in the short term, but the medium to long-term impact may be limited.

"At present, with the continuous promotion of various policies in the 'active capital market', we believe that reducing stamp duty is still a tool that can be timely introduced in the trading side policy toolbox. Although the effect is focused on boosting short-term sentiment, the symbolic meaning of the policy it brings is greater than the loose meaning of the capital side," said Debon Securities' research report.

The research report of CITIC Securities has sorted out the investment side, financing side, and trading side, and believes that the following policies may play a role in activating the capital market. The investment side includes introducing medium and long-term funds, expanding opening up to the outside world, reforming the assessment mechanism of public funds, and reducing fees for public funds. The financing side includes reasonable control of IPO and refinancing speed, increasing the supply of high-quality companies, and platform companies going public overseas. The trading end includes reducing securities trading stamp duty, T+0 trading mechanism, etc.

How much is more appropriate to reduce?

According to data from the Ministry of Finance, in the first half of 2023, the stamp duty revenue from securities trading was 110.8 billion yuan, accounting for 1.11% of the tax revenue of 9966.1 billion yuan during the same period and 0.93% of the fiscal revenue of 11920.3 billion yuan during the same period. Furthermore, it is worth noting that in the first half of 2023, fiscal revenue increased by 13.3% year-on-year, tax revenue increased by 16.5%, and stamp duty on securities transactions decreased by 30.7% year-on-year.

The timeline has been extended. In the past decade, the proportion of stamp duty revenue from securities trading to tax revenue has only been 1.06%, and the proportion to fiscal revenue has only been 0.89%. Even in the bull market of 2015, the proportion of stamp duty revenue from securities trading to tax revenue and fiscal revenue was only 2.04% and 1.68%, respectively.

"The proportion of securities transaction stamp duty revenue to the national fiscal revenue is not significant, and the country is not short of this amount of money." Professor Sun Yudong from the School of Public Administration of Renmin University of China told CCTV Capital Eye, "Currently, the fiscal revenue function of securities transaction stamp duty is very small."

On the other hand, in terms of tax fairness, Sun Yudong pointed out that "stamp duty on securities trading is not a very fair tax. It has the nature of a turnover tax, which means that regardless of whether investors sell stocks at a loss or for profit, they must be taxed according to the transaction amount, 'flying geese and pulling feathers'."

However, in the future, stamp duty on securities transactions, whether reduced or exempted, will face a legal procedural issue.

The Stamp Tax Law passed on June 10, 2021 and implemented on July 1, 2022 includes stamp duty on securities transactions. Therefore, if the tax items or rates need to be adjusted, the government can propose a revised draft for approval by the Standing Committee of the National People's Congress, or the government can revise it with authorization from the Standing Committee of the National People's Congress. "Of course, this is an operational issue, and the key to the current issue is whether adjustments should be made, not how." Sun Yudong said, "In order to encourage investors to participate in trading, the cancellation or reduction of securities trading stamp duty is definitely good news for the securities market."

According to a research report by China Merchants Securities, many countries and regions around the world have imposed securities trading taxes, but major securities trading markets have ultimately tended to abolish this tax. In 1966, the United States stopped collecting securities trading stamp duty, and in 1991, Germany also stopped collecting this tax. Several countries have since stopped collecting this tax. Recently, the Hong Kong Securities and Futures Association has also requested the Hong Kong government to revoke the stamp duty on stock trading.

Wang Jinbin, Vice Dean of the School of Economics at Renmin University of China, told CCTV Capital Eye, "Adjusting the transaction system to reduce costs is beneficial for revitalizing the capital market, and a larger decrease will naturally have better effects."

"At present, the stamp duty on securities trading has become a 'chicken rib', and there is not much room to reduce the current 1 ‰ tax rate." Liu Zhigeng suggested directly canceling the stamp duty on securities trading to give the stock market the most powerful boost.

Xue Hongyan stated that reducing the stamp duty on stock trading has a relatively small impact on national taxation and is also in line with the policy orientation of reducing taxes, fees, and benefits for entities. Given that the international mainstream securities market has gradually abolished stamp duty, if the A-share market reduces stamp duty, the step can be larger, such as reducing the stamp duty rate from 1 ‰ to 0.5 ‰ in one go. Depending on the situation and in line with international standards, the stamp duty on securities trading can be gradually abolished. In addition, stamp duty can also be considered as a policy tool to encourage long-term investment, with differentiated stamp duty rates levied on different holding periods.

Xu Peng also pointed out that in recent years, various levels of central and local governments have been promoting tax reduction and fee reduction, and the stamp duty on securities trading has continued since the adjustment in 2008. Currently, adjustments can be attempted, and the market has strong expectations for this. "But if the tax rate is lowered to zero, it is also unrealistic, because although the annual stamp duty revenue from securities trading of over 200 billion yuan does not account for a large proportion of the total fiscal revenue, its absolute value is still considerable." Xu Peng said, "It is recommended to reduce the tax rate from the current one thousandth to five thousandths. If the reduction is too small, the market will not see sincerity, and if the reduction is too large, it will still have an impact on fiscal revenue."

"In the current situation, the stamp duty on securities trading should be adjusted downwards. From a specific perspective, it can be halved or directly cancelled. However, this is related to the balance between fiscal revenue and the capital market, and needs to be comprehensively considered." Ye Xiaojie said.