China won't abolish interest tax in a short time

By Shangguan Zhoudong (Chinadaily.com.cn)
Updated: 2007-06-20 15:52

China won't release policies to abolish the interest tax in a short time due to the fact that the tax can only be abolished through legislation, the Finance and Investment newspaper reported today.

The launch of the tax was decided by the Standing Committee of the National People's Congress (NPC), China's top legislative body, in 1999, according to Liu Huan, a professor with the Central University of Finance andEconomics.

"Canceling the tax also must be decided by the legislation body," Liu added. "As a kind of income tax, any significant adjustment must go through legislation procedures."

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An expert with the Ministry of Finance also pointed out that although the State Council, China's cabinet, was authorized to set the starting time and collection measures of the tax, it has no power to stop collecting the tax.

China's consumers price index grew 3.4 percent in May, the highest in more than two years. 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 and the abolishment of the interest tax.

In May, China's household deposits plunged by 278 billion yuan (US$36.2 billion), after a 167 billion yuan decline in April, as more and more people withdraw money and invest in the stock market, so canceling the tax may enhance the attractiveness of depositing in bank accounts.


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