The interest tax imposed on
personal bank savings has been met by landslide public objection, a survey
The survey, conducted jointly by China Youth Daily and QQ.com, revealed that
93.7 percent of the 6,723 respondents considered the current interest tax
"It is unfair to charge us once more with interest tax while we have already
paid personal income tax," a survey respondent said.
A 20 percent tax on savings interest was introduced in 1999 in a bid to
reduce mounting individual savings.
Seven years on, despite the tax, the Chinese "hobby" of saving shows no sign
of abating as China's renminbi savings deposits reached 15.97 trillion yuan by
November last year, up 15.3 percent on the previous year.
The tax has also failed to stimulate consumer spending, as ultimate
consumption rate dropped the record low 51 percent last year.
Opposition to the tax is getting more vocal every year.
According to Chen Liangwen, an economic researcher with Peking University,
China's high savings rate was attributed to low consumer confidence because of
high employment pressures and costly education, housing and medical care.
"The interest tax levied during the past eight years has proven not to be
useful in simulating consumer spending. It is time for a change," Chen said.
According to Chen, given inflation and the interest tax, the real interest
rate on bank deposits was virtually negative.
Facing intense calls for abolishing the interest tax, some officials with
Ministry of Finance argued last year that the total deposits of the wealthy were
far greater than those of the poor, and the affluent paid more tax, for public
But some economists disagree.
"The role of interest tax in coordinating the income gap is limited," Zhao
Xijun, vice-dean of the Finance and Security Research Institute with Renmin
University of China, said.
"Instead, a more effective tool is to increase financial input into public
According to Tan Yaling, a researcher with the Bank of China, the rich have
more investment channels, whereas the poor rely more on bank savings to make a
"The tax chips away at the savings of middle and low-income families, whereas
those with higher wages are relatively unaffected," Tan told Beijing Youth
The government should adopt different interest tax rates for the rich and the
poor, he said.