A woman looks at stock prices on an
electronic board in Beijing June 5,2007.
China has no plans yet to levy a capital gains tax, reports a major
securities newspaper Thursday, citing official sources.
Speculation about a possible capital gains tax following a stamp tax hike
sent China's benchmark stock index down more than 20 percent in less than a
"Those who think the capital gains tax can be announced
anytime, just like the adjustment of the stamp tax, know nothing about the law
and the speculation is groundless," said an unidentified official quoted by
Shanghai Securities News.
The source went on to say that a State Council rule in 1988 authorizes the
government to adjust the stamp duty whenever needed. However, capital gains tax
is a new category of duty and the government currently has no legal basis for
collection, according to the source.
If regulators want to set up the capital gains tax, they must go through
related legislation procedures, from putting forward motions, to getting
approval by the country's top legislature, the source noted. "That will take a
long time and the process is highly transparent."
"As far as I know, there are no such plans," the source said.
The newspaper also got confirmation from other officials, but did not provide
their names or departments.
Capital gains tax, in a general sense, covers not only the stock market, but
also the real estate sector, officials said, and so it has widespread economic
"The conditions for collecting the duty are not ripe yet and the tax can in
no way be legislated easily," added the official.
In fact, State Administration of Taxation officials have rejected the capital
gains tax speculation, but investors would not believe them as the Ministry of
Finance denied a stamp tax hike several days before announcing it.
China's stock market became extremely volatile after the stamp duty increase
as investors went on panic selling, fearful of further cooling measures,
including capital gains tax.
The Shanghai Composite Index tumbled 6.5 percent the day after the duty hike
before rebounding slightly on May 31. The index fell again June 1 before
plunging 8.3 percent on Monday, the second sharpest fall in a decade. On
Tuesday, it plummeted as much as seven percent before picking up gradually to
close in positive territory.
Highlighting the extent to which investors' confidence has been affected, the
number of new A-share accounts opened on Tuesday hit a two-month low of 162,00,
statistics from the China Securities Depositary and Clearing Corporation showed.
That compared with a record 385,000 new accounts opened on May 28, the day
before the stamp tax hike.