Financial Focus | Half Reduction of Stamp Duty on Securities Trading Releases Clear Positive Policy Signals

The Ministry of Finance and the State Administration of Taxation announced on the 27th that in order to activate the capital market and boost investor confidence, the stamp duty on securities trading will be reduced by half from August 28, 2023. What signals have been released behind the adjustment of securities trading stamp duty that has attracted attention from all parties?

Industry insiders pointed out that the Politburo meeting of the Communist Party of China Central Committee held on July 24th clearly proposed to "activate the capital market and boost investor confidence", making the tone and direction of the capital market more positive and clear. The current reduction in the stamp duty rate for securities trading fully reflects the central government's firm attitude towards the active capital market and its confidence and determination to protect the stock market, releasing a clear and positive policy signal.

The reduction of stamp duty rate for securities trading has boosted the market

The previous reduction in stamp duty rates for securities transactions has had a boosting effect on the capital market, and this tax rate reduction has also significantly boosted market sentiment. As of the close on the 28th, individual stocks have seen more gains than losses, with trading volumes on the Shanghai and Shenzhen stock exchanges exceeding 1.1 trillion yuan. The Shanghai Composite Index closed at 3098.64 points, up 1.13%; The Shenzhen Component Index closed at 10233.15 points, up 1.01%; The ChiNext Index closed at 2060.04 points, up 0.96%.

According to data, in 2022, China's securities trading stamp tax revenue reached 275.9 billion yuan. In the first seven months of this year, the stamp tax revenue from securities trading reached 128 billion yuan. He Daixin, Director of the Finance Research Office of the Institute of Finance and Strategy at the Chinese Academy of Social Sciences, stated that in the current situation of significant financial pressure, the signal of this policy is clear, which is to exchange the "reduction" of fiscal revenue for the "increase" of market vitality.

He Daixin said that from the previous adjustments, the reduction of the stamp duty rate on securities transactions cannot be ignored in activating the financial market, especially the securities market. Faced with the current complex economic situation and the new development environment of the securities market, this tax rate reduction will not only substantially reduce transaction costs, but also have a very positive effect on building confidence in the securities market.

Reduce market transaction costs and release more liquidity to the market

Reducing the stamp duty on securities trading by half is an important tax policy tool for reducing securities trading costs and enhancing securities trading activity. The reduction in tax rate this time is 50%, which is a direct and inclusive policy to reduce the tax burden on investors. This will help increase investor trading willingness and release more liquidity to the market.

There are over 220 million individual investors in China's stock market, accounting for 99.76% of all market investors. Among them, investors holding less than 100000 yuan and those holding between 100000 and 500000 yuan account for 87.87% and 8.12%, respectively. Zhao Xijun, Co Dean of the China Capital Market Research Institute at Renmin University of China, believes that reducing the stamp duty on securities transactions is conducive to benefiting small and medium-sized investors through tax reduction and benefit policies, and making the orientation of tax inclusiveness more fully reflected in the capital market dominated by small and medium-sized investors.

Zhao Xijun said that the policy adjustment of securities transaction stamp duty is a very effective concession for investors and a substantial benefit to the securities market. Lowering the stamp duty rate for securities trading is beneficial for reducing market transaction costs, reducing the burden on investors, reflecting the policy orientation of tax reduction, fee reduction, profit sharing, and benefiting the people. It will have a significant effect on revitalizing the capital market and enhancing investor confidence.

Regulatory policies launch three arrows simultaneously to inject more confidence into the market

It is worth noting that after the policy announcement of halving the stamp duty on securities trading, the China Securities Regulatory Commission also issued three consecutive policy measures on the evening of the 27th, continuously sending positive policy signals to the market.

In Zhao Xijun's view, the policies of the China Securities Regulatory Commission (CSRC) have launched three arrows in response to the recent market attention and calls. Whether it is "optimizing IPO and refinancing regulatory arrangements", "further regulating share reduction behavior", or "securities exchanges lowering financing margin ratios", they will promote a more virtuous cycle of investment and financing, injecting more confidence into the market.

After the Politburo meeting of the Central Committee of the Communist Party of China held on July 24th clearly stated the need to activate the capital market and boost investor confidence, regulatory authorities have continuously introduced a series of policy measures, including optimizing refinancing interest rates, lowering the ratio of settlement provisions, and lowering securities trading fees. On August 18th, the China Securities Regulatory Commission clarified a package of policy measures to implement this important decision and responded to market concerns.

"The regulatory authorities' three arrows' continue to respond to market concerns about active capital market policies, which will play a key role in stabilizing market confidence. The sustainability and intensity of reforms in the investment, financing, and trading sides of the capital market are all worth looking forward to," said Hu Xiang, Chief Analyst of the Financial Industry at Dongwu Securities.