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Following is the speech by the Secretary for the Treasury, Miss Denise Yue, in moving the second reading of the Revenue Bill 2000 in the Legislative Council today (March 15):

President,

I move that the Revenue Bill 2000 be read the second time.

The Revenue Bill 2000 seeks to amend the Stamp Duty Ordinance (Cap.117) to reduce the rate of stamp duty on stock transactions by 10% from the existing 0.25% to 0.225% per round transaction. The reduction applies to the ad valorem duty rates both on contract notes for sale or purchase of Hong Kong stock and on certain transfers of such stock. This is one of the revenue proposals which the Financial Secretary announced in the 2000-01 Budget to this Council on March 8.

As the Financial Secretary explained on that occasion, the primary purpose of this revenue concession is to help sustain Hong Kong's competitiveness in the global financial marketplace by lowering the costs of stock transactions.

Hong Kong faces increasingly severe competition from other major financial markets, for investment funds and for business in stock transactions. The international trend is to reduce stamp duty and even abolish it altogether, in order to enhance the competitive edge. A number of well-established stock markets, including the United States, Japan and New Zealand no longer charge stamp duty on stock transactions. Singapore has recently abolished stamp duty on sale and purchase of stocks. Austria is planning to abolish its transaction tax on quoted securities in September 2000.

These moves pose a serious challenge to all other exchanges, and Hong Kong is no exception. Bearing in mind that all stock markets share the same stream of capital flow and the same group of investors who see no boundaries to investment opportunities, we need to reduce the stamp duty rate as a concrete step to bring down the cost of stock transactions in Hong Kong if we are to compete with other financial markets and strengthen our foothold in the global financial marketplace.

Lowering the stamp duty rate alone, however, will not be sufficient to achieve the desired competitive impact. As the brokerage commission takes up two-thirds of the total transaction cost of stock trading in Hong Kong, we would like to see a concerted effort from the industry to accompany the reduction in stamp duty with a lifting of the current minimum brokerage fee requirement.

It is indeed gratifying that the newly-established Hong Kong Exchanges and Clearing Limited (HKEC) has responded positively to our call. On March 8, the Chairman of the new Exchanges issued a consultation paper to the Exchange participants, seeking their comments on a proposal to remove the existing minimum brokerage commission requirement from the Rules of the Exchanges on April 1, 2002. Moreover, HKEC proposed immediate exemption for transactions on new products under the Nasdaq-Amex Pilot Program and similar pilot programs to be introduced before April 1, 2002. Participants of the Exchange have been asked to comment on these proposals by April 10, 2000. The importance of this exercise is placed into perspective by the statement in HKEC's consultation paper that the fifteen largest markets in the world, in terms of market capitalisation, have already adopted a system of free negotiation for commission rates, with the exception of Hong Kong and Taiwan, which still impose different commission restrictions. Within Asia, our nearest competitors have also been liberalising their restrictions on brokerage commission over the past few years. It is obvious that liberalisation of controls over brokerage commission is another global and regional trend, in addition to abolition of stamp duty.

Whilst awaiting the final decision of the Exchanges, we consider it highly desirable that we complement such efforts by giving effect to the proposed reduction in stamp duty rate as soon as possible.

There has been feedback from some quarters of the business community that a mere 10% reduction in stamp duty on stock transactions is not enough to create any material impact in view of the trend towards stamp duty abolition. However, I wish to point out that stamp duty on stock transactions has long been a significant source of recurrent revenue. The proposal to reduce the stamp duty rate by 10% is estimated to cost $520 million in 2000-01 and $3.5 billion (including consequential interest loss) in the medium range forecast period to 2003-04. In view of our fiscal constraints, we have to strike a suitable balance in the coming year between the need to restore our financial position and the need to upkeep our competitiveness in the stock market. Nevertheless, as stated by the Financial Secretary in the Budget Speech, we will sympathetically consider any subsequent request from the industry for future reductions in stamp duty on stock transactions on the basis of the new Exchanges' decision on brokerage commissions.

President, with these remarks, I commend the bill to Members.

End/Wednesday, March 15, 2000

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