High time to abolish the interest tax

(China Daily)
Updated: 2007-06-16 09:54

It is high time to abolish the interest tax for the good of national economy and people's livelihood, said a signed article in Guangzhou Daily.

Last month China's household deposits plunged by 278 billion yuan ($36.2 billion), after a 167 billion ($21.8 billion) decline in April. Meanwhile, the renminbi deposit balance stood at 36.03 trillion yuan ($4.68 trillion), a year-on-year increase of 14.63 percent, the lowest growth rate since April 2002.

Experts pointed out that the biggest problem at present is the diverging of deposit money and to abolish the 20 percent tax on interest is more important than raising the interest rate. This well fits the current situation.

Statistics show that the customer price index (CPI) reached 3.4 percent in May, the highest in more than two years. While benchmark one-year deposits carry an interest rate of 3.06 percent. Thus the real interest rate is negative, raising the pressure for an interest rate hike.

Authorities of the National Development and Reform Commission stressed lately that the current food price hike still cannot evoke inflation.

But as CPI goes up, macro-control is unavoidable now. To abolish the interest tax will be a good choice. It will to a large degree change the current situation of negative real interest rate and then enhance the attractiveness of deposits.

Its advocates claimed that the tax is a Robin-Hoodish solution, which can help the poor. This reasoning is even more ridiculous as the rich have more channels of investment while the poor are the major payers of the interest tax.

It is unrealistic for low and medium income earners to put all their money in other investment channels as the risks will be high. What is more, if all people choose to invest instead of saving, the economy will be overheated. Thus it is necessary to abolish the interest tax for the good of the country and the people.

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