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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
and Economics.

"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."

Related readings:
High time to abolish the interest tax Strong support for proposal to
scrap interest tax: survey
Figures indicate risk of overheated economy
Wen urges further cool-down measures

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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