Hong Kong’s plan to increase the stamp duty on stock trading will not harm the competitiveness of the city’s financial markets, Financial Secretary Paul Chan told CNBC on Friday.

Chan said in his budget speech on Wednesday that the government will raise the stamp duty paid on listed stock trades from 0.1% to 0.13%. The announcement sparked a sell-off in shares of the operator of the city’s stock exchange, and the broader Hong Kong market.   

“The Hong Kong market has been doing very well, very active, the volume has gone up quite a bit,” Chan told CNBC’s Emily Tan.

“So, perhaps this is the time for us to increase a little bit on the stamp duty which will not harm our competitiveness and at the same time will bring additional revenue to the government at this juncture,” he added.

The financial secretary said Hong Kong authorities have in recent years launched different initiatives to enhance the competitiveness of the city’s stock market. That includes allowing listings of dual-class shares and attracting U.S.-listed Chinese companies to seek a secondary listing in Hong Kong, he said.

Hong Kong in 2020 was one of the top markets for listings globally as Chinese firms such as e-commerce giant JD.com and gaming company NetEase raised funds through secondary listings.

In total, the city’s stock exchange saw 132 initial public offerings worth $32.1 billion, and 199 further offerings worth $62.9 billion last year, according to data compiled by consultancy PwC.

With such “robust” capital markets activity, raising the trading stamp duty may offer Hong Kong “a quick solution” to increase its tax revenue in the short term, said Stanley Ho, a partner for corporate tax advisory at consultancy KPMG China.

“However, it is also important for Hong Kong’s capital markets to stay competitive with global financial markets, many of which are trending towards reducing or removing such duties,” Ho said in a statement after Chan’s budget speech.

Chan said he remains confident of Hong Kong’s prospects as an international financial center.

He explained that the government is working on promoting Hong Kong as a center for sustainable and green finance, developing further the city’s fixed income markets and encouraging more activity in the asset and wealth management sectors.

On the stock market sell-off after his announcement of the trading tax hike, Chan said Hong Kong wasn’t the only one experiencing a “downward adjustment” following a previous run-up.

“So, I would not be bothered by temporary fluctuations in the market. What we believe is we continue to work hard to enhance the offering of our market to further enhance the competitiveness and attractiveness of the Hong Kong market,” he said.

“We will continue to attract inflow of international capital.”