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Transaction taxes are never convenient

Levy on stocks incorporated in Europe are unfair to HK investors and should be fought

PUBLISHED : Tuesday, 09 April, 2013, 12:00am
UPDATED : Tuesday, 09 April, 2013, 6:34am

Death and taxes and childbirth. There's never a convenient time for any of them" American author Margaret Mitchell wrote in Gone with the Wind. Many local brokers and investors feel the same about Italy's new financial transaction tax, effective from March 1, that will affect investors who trade shares in Hong Kong-listed fashion brand Prada.

Some brokers are even telling investors not to touch the shares until the government and the stock exchange make it clear how the tax will be collected. Local investors will have to pay 0.22 per cent of the transaction to the Italian taxman when they trade Prada shares. The tax will be reduced to 0.2 per cent next year. The tax is on a net daily basis, so an investor who buys 1,000 shares and then sells 900 shares later on the same day would only need to pay the tax for 100 shares.

Unlike the stock market stamp duty that only applies to stock transactions in Hong Kong, the new Italian tax applies to all shares, as long as they are incorporated in Italy. As such, even if their shares are traded outside Italy the tax still applies.

The Italian taxman is not alone in trying to dip into the pockets of investors in Hong Kong. Tax officials from another 10 European countries plan to do the same. A similar financial transaction tax will be imposed by France, Germany, Austria, Spain, Belgium, Estonia, Greece, Portugal, Slovakia and Slovenia from next January for all shares, derivatives products and bonds traded by companies registered in those countries.

The tax is obviously aimed at collecting money to solve the region's debt problems. With the deepening euro-zone debt crisis, this is easily understood.

Some say the tax is also aimed at cracking down on speculators who have been blamed for the crisis of 2008.

But local Hong Kong investors are not to blame and should not be punished. The Hong Kong government should really take action on the issue as the taxmen from these 11 European countries are unlikely to listen to complaints raised by small investors or brokers in Hong Kong.

There is simply no reason why Hong Kong should pay this new tax to help ease the debt crisis in Europe. People here are big buyers of Prada and other fashion brands in Europe and we have contributed a lot to its economy already.

Hong Kong investors are not the ones who had anything to do with the speculative activities that caused the financial crisis in the US or Europe. We had our Asian financial crisis in 1997 and 1998 and that was caused by international speculators, including some European firms. Did we tax these European investors trading in Hong Kong or Asian markets?

The new European tax is anti-investment and it is simply not fair to charge Hong Kong investors. The government should step up to fight for an exemption for them.

It has led to a lot of confusion in the market, and confusion is never good for investment. Something must be done as soon as possible.

enoch.yiu@scmp.com

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