Tax rumors "raid" Hong Kong stocks! Institutional interpretation: excessive deduction and extremely low credibility

# Source: Wall Street Insights

By Xu Chao

Amid the share price decline of Hong Kong-listed internet giants, a news item about "China to adjust the recognition criteria for high-tech enterprises and introduce new relevant tax policies" has spread widely. Everbright Securities stated that the rumored claim that "the tax rate for the gaming industry will be aligned with that of the liquor industry" is a common-sense fallacy. The two industries have entirely different tax levying logics and legal bases, with no ground for such "alignment". Furthermore, tax rate adjustments require rigorous legislative or administrative procedures. At present, the focus of macro policies is on "stabilizing growth, boosting innovation and supporting industrial upgrading", and a one-size-fits-all tax hike on key industries at this time runs counter to the overall policy orientation.

In early trading on Tuesday, the Hong Kong stock market was hit by the tax rumor, sending internet and tech stocks into a collective slump. Several securities firms responded quickly, noting that the relevant rumors are an overreach of inference, untenable in terms of tax categories, laws and policy logic, and of extremely low credibility.

The Hang Seng Tech Index had initially tracked the strength of overseas markets in early trading on the day, but suddenly plummeted at around 10:50 a.m., with the decline widening to 3.37% at one point and standing at 1.31% by midday. Kuaishou fell more than 7% at one point, Bilibili, Baidu and Tencent Holdings dropped over 6% at one point, and Alibaba nearly 5% at one point.

The market panic stemmed from a rumor that "China will adjust the recognition criteria for high-tech enterprises and introduce new relevant tax policies", which mentioned a possible tax rate hike for the financial industry and internet value-added services. Huachuang Securities pointed out that the above-mentioned rumors are an overreach of inference without solid basis, and run counter to the current major policy of boosting consumption. Everbright Securities Overseas made a more explicit comment that the rumors are untenable in terms of tax categories, laws and policy logic, and of extremely low credibility.

## Resurgence of Rumors Triggers Market Volatility

The main cause of the market slump was a tax rumor. As the share prices of internet giants tumbled, news of a possible hike in the value-added tax rate for the financial industry and internet value-added services (such as in-game purchases and advertising) spread widely, along with a rumor drawing a parallel between this potential hike and the high tax rate of the liquor industry.

Analysts pointed out that such unsubstantiated information has circulated in the market more than once. Various versions have been spreading since 2019, none of which have materialized. Foreign media also ran similar reports last year, which also failed to be implemented subsequently.

## Institutions Refute the Rumors: Confusion of Tax Categories and Legal Constraints

In response to the rumored claim that "the tax rate for the gaming industry will be aligned with the 32% rate of the liquor industry", Everbright Securities Overseas pointed out in its interpretation that this is a common-sense fallacy.

The 32% tax rate applicable to the liquor industry is consumption tax (ad valorem tax plus specific tax), while in-game purchases and advertising services are subject to value-added tax (VAT). The two have entirely different tax levying logics and legal bases, with no ground for such "alignment".

Under the current legal framework, the financial industry, gaming and advertising all fall under the subcategory of "modern services" subject to VAT, with a statutory tax rate of 6%. In accordance with the *Value-Added Tax Law of the People's Republic of China*, which has been implemented since January 1, 2026, the tax rate brackets are clearly set at 13%, 9% and 6%. The Announcement No. 9 of 2026 recently issued by the Ministry of Finance and the State Taxation Administration only involves the adjustment of the tax rate for basic telecommunications services, and makes no mention of the financial and internet value-added services.

Institutions emphasized that tax rate adjustments require rigorous legislative or administrative procedures, and are by no means arbitrary as speculated by the market, and there is no policy basis for categorizing the above-mentioned industries into higher tax brackets.

In addition, any possible tax regulation in the future will be more focused on the verification and rectification of tax incentive qualifications for some enterprises (such as the qualification of high-tech enterprises), rather than a direct hike in statutory tax rates, and the impact of such measures will be limited and controllable.

## Policy Logic: Tax Hike Runs Counter to Macro Orientation

Beyond legal constraints, multiple analyses hold that the rumors are also logically inconsistent in terms of economic principles.

Huachuang Securities pointed out that if internet enterprises face a tax hike, the costs will most likely be directly passed on to end consumers, which runs counter to the country's current major policy of boosting consumption and is not logically inferable.

Everbright Securities Overseas further analyzed that the current focus of macro policies is on "stabilizing growth, boosting innovation and supporting industrial upgrading". The internet platform economy and the overseas expansion of the gaming industry are key supported areas, and a one-size-fits-all tax hike on key industries at this time runs counter to the overall policy orientation. Although there is room for discussion on the tax burden of the financial industry, the regulatory approach is more inclined to structural adjustments such as optimizing deduction rules, rather than a crude tax rate hike, so as to avoid hitting credit supply and financial stability.

## Valuation and Outlook: Long-Term Logic Remains Unchanged

Despite short-term emotional disturbances, the fundamental valuation of the Hong Kong stock market remains attractive. Data shows that as of January 30, 2026, the price-to-earnings (PE) and price-to-book (PB) ratios of the Hang Seng Index stood at 12.47 times and 1.27 times respectively, at the 82nd and 63rd percentiles since 2010. Meanwhile, the equity risk premium of the Hang Seng Index was 3.76%, indicating a favorable investment cost-performance ratio.

Galaxy Securities believes that the tech sector remains the main theme for medium and long-term investment, and is expected to move upward with fluctuations against the backdrop of industrial chain price hikes, domestic substitution and the accelerated advancement of AI applications. GF Securities suggested that against the backdrop of the fading US dollar cycle and the moderate appreciation of the RMB, Chinese equity assets are in a favorable repricing window. For Hong Kong stocks, investors can focus on seizing the opportunities brought by the inflow of southbound capital and valuation discounts, and prioritize the layout of leading tech enterprises and internet platforms with both dividend-paying capacity and growth attributes.

### Risk Notice and Disclaimer

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