Hong Kong should scrap its stamp duty on share trading
Headline, Monitor column
An old veteran of the news desk once berated me for taking issue in print with another journalist's opinions. "Dog doesn't eat dog," he said.
He had the identity of the species right, of course, but I'm not sure about the diet prohibition.
One of a newspaper's services to society is to provide a forum for argument of issues of the day and if this debate is between journalists, so be it. I differ with my colleague Tom Holland on this business of stamp duty.
Tom's argument is that the 0.1 per cent stamp duty on almost all transactions on the stock exchange reduces turnover, pinches liquidity, eats into investor savings and undermines valuations. What is more, he says, the government doesn't need the money. Its fiscal surplus is routinely in multiples greater than the HK$20 billion income from the stamp duty last year.
For my part, I say that this particular stamp duty is Hong Kong's reward for maintaining rule of law. Even if we don't absolutely need it, we have earned it and I seen no reason then why we shouldn't take it.
Virtue may be its own reward, but why turn down the cash if virtue sometimes also pays a dividend?
I am not saying, mind you, that Tom's line of reasoning is invalid.
Yes, stamp duty does discourage high-frequency trading and this does reduce the liquidity available in the market to other investors. Yes, deal too often and you enrich the treasury at the cost of your own retirement savings. Yes, our government is swimming in money (eat your heart out, Barack Obama) and ought to find ways of giving it back to us rather than taking more from us.
In fact, I could cite some arguments against stamp duty, which Tom didn't mention. Stamp duty is only one of seven different fees and charges on each transaction, although the largest. With all these bites it takes out of investors our exchange is under constant pressure to dive for the bottom on listing standards in order to keep those listings coming.
But one reason they do come and one reason you come as an investor on the other side is that when you pay this stamp duty you can register these securities in your own name in Hong Kong and it gives you an assurance you value.
You could perhaps go to a registry in Bongo Bongo if you really wanted to but then you might find one day that Bongo Bongo has slid back under the ocean or that the US government will not recognise anything registered there because Bongo Bongo's national currency is the Cocaine.
There are many things that can go wrong in Bongo Bongo.
Alternatively, you can try registration in China, except that you can't because the capital account is still officially closed. Even if it were open, however, you would find that China's courts are not familiar with share ownership disputes and have a natural bent towards settling them in favour of the litigant with the biggest political clout. Even that could take you 10 years to discover.
But these things go well in Hong Kong. Our share registry is efficient, our litigation process works and our judiciary is fair-minded. It means something to have your name pinned in Hong Kong to securities you own.
This comfort factor has a definite if intangible value and investors were happy last year to set a price of HK$20 billion in stamp duty payments on it.
Tom may be right and this price may be too high for what we get but I don't think so. There is no firm benchmark for this, of course, but I think the difference that stamp duty makes to liquidity and valuation is actually quite small.
On the other hand, the advantage we enjoy over many other jurisdictions with our internationally recognised rule of law is actually quite big and it is particularly why I think we should value and maintain this income stream.
A pay cheque always gives you a better feel than a welfare benefits cheque. This is our pay cheque. We work for it and it looks good up there in the fiscal revenue statement. Let's keep it.