SOME key regulators involved in setting up a landmark stock trading link between Hong Kong and Shanghai have told market participants they expect the program to be free of any capital gains tax, people with knowledge of the discussions said.

    However, it is not yet clear if a final decision has been made, these sources said.

    The trading link, hailed as a milestone to open up China to global investors, is expected to start Oct. 27.

    Hong Kong does not impose capital gains tax. However, the mainland applies a 10 percent capital gains tax on foreign institutional investors who trade shares listed in Shanghai and Shenzhen.

    “We have had a lot of verbal reassurances that there won’t be a tax, but nothing official,” said a senior executive who attended a meeting with senior officials of the China Securities Regulatory Commission (CSRC), the main mainland regulator of the program. “The uncertainty is causing concern.”

    CSRC officials said privately at an investor meeting in Beijing two weeks ago and at a similar gathering in Shenzhen last month that the mainland would not levy the tax on profits made from trading mainland stocks through the program, individuals with knowledge of the meetings said.

    The Hong Kong Securities and Futures Commission said in a separate meeting that the program would not be subject to the mainland’s capital gains tax, another person said.

    The final decision does not rest solely with the CSRC because several other State agencies are involved, the sources said. The process for coming to a final decision is not clear.

    The CSRC is worried that a capital gains tax would reduce potential trading volumes in the program. It is at odds with the State Administration of Foreign Exchange, which favors a tax, one source said.

    The State Administration of Taxation is also involved in the talks, another source said. Its position is not clear.

    Unveiled in April, the Shanghai-Hong Kong stock connect program allows international investors to trade Shanghai-listed shares via the Hong Kong stock exchange.

    It will also allow mainland investors to trade Hong Kong listed shares via the Shanghai Stock Exchange, subject to quotas both ways.

    (SD-Agencies)