A powerful Chinese industry committee says China should overhaul its stock-market tax policies to foster long-term investment, curb speculation, and protect minority investors.
The Central Committee of the China National Democratic Construction Association wants reforms of the levy on stock transactions and coordination of personal and corporate tax systems with capital-market taxes.
It also seeks to have investors taxed based on how long they keep their equity holdings, to punish short-term traders and reward longer term investors.
The committee also wants the government to make detailed tax arrangements for the fledgling bonds and futures markets and to streamline procedures to avoid double taxation.
Story Continues Below
"The aim of the reform should be focused on setting up a tax system with fairness and targeting different sectors of the capital market,” the proposal noted, adding that a capital gains tax should be adopted only "when the timing is right.”
The proposal drew heated debate over adjusting tax laws during periods of increasing market volatility, causing some economists to call for taking measures to restore investor confidence.
Plan proponents say that taxing investors based on how long they keep their equity holdings would stabilize market performance.
The Chinese government tripled the stamp duty on stock transactions to 0.3 percent for both buyers and sellers last May, which dented the key stock index by as much as 20 percent.
Equities have since recovered, but investors complained they face uncertain trading costs.
"We don't have a complete tax system for the stock market, and some current rules don't help much to protect small investors,” Goal Securities analyst Wu Zhou told the Shanghai Daily.
"It will be encouraging if the country can work out plans to develop a mechanism for the long haul.”
Many Chinese want the government to require stamp duty from only one side of share trades and to eliminate a 20 percent tax now charged on dividends that listed firms pay to investors.
Stamp duty collected on 2007 equity transactions totaled $28.20 billion, more than 10 times that collected a year earlier, according to official state tax data.
Meanwhile, the China Securities Regulatory Commission is speeding up efforts to introduce a short-selling system this year. The reform was first suggested by regulators at least two years ago, but it was postponed amid concerns of possible speculation and investors' unfamiliarity with the system.
Industry analysts say that short selling will boost liquidity and shore up trading, but they also caution that introducing it without a solid regulatory framework could cause rampant speculation.
The proposed reform would allow retail investors to borrow stocks from brokerages and sell them with the intent of re-purchasing them later at lower prices, a system the agency expects will debut later this year.
Timing for the launch depends on market conditions, says securities analyst Lou Kiwi. "If stocks perform poorly, the launch will likely be further delayed to prevent turbulence."
The watchdog agency is also making active efforts to introduce stock index futures, according to a spokesperson, and moving forward with a plan that would let Chinese mainland companies incorporated overseas whose shares are traded in Hong Kong to sell yuan-backed stocks. The plan would also allow overseas firms to list on the mainland.
© NewsMax 2008. All rights reserved.
Editor's note:
Why Oil Prices Will Go Much Lower After November Election. Best Ways to Profit Now.
Financial Intelligence Report Stock Picks Soaring. Up 53% to 63%!
The Recession’s Silver Lining. What it Means for Investors.
Cash in on the Shocking Growth of Personal Debt
Which Stocks Should You Dump Immediately
Investors now urged to avoid the Euro. Find out why.
Why the Dollar May Have Hit Bottom. New Actions to Take Now.
Capture 10% to 15% Dividend Income Every Month
