Fix tax legislation
(China Daily)
Updated: 2008-03-04 07:26

With so many big issues dominating this year's legislative season, a call for improved taxation for China's capital markets may understandably draw little attention.

However, political advisers are still commendable for submitting a proposal at the ongoing session of the Chinese People's Political Consultative Conference on adjusting taxation related to the country's stock market.

The Beijing Olympics, soaring inflation and a plan to streamline the central government are all high on the agenda. Though not as eye-catching as these topics, the call for a stamp tax cut demands equal attention from both the related government department and legislators.

An improved taxation system is crucial to enhancing investors' confidence, the base for long-term development of the stock market.

With their rapid expansion in size and depth, the domestic stock markets are playing a more and more significant role in raising the overall efficiency of the economy by redistributing funds to those competitive firms. Meanwhile, a sound stock market can also help create conditions for the public to have more incomes.

Yet, among all the problems that impede the healthy development of the stock market, the current stamp tax stands out as the one that requires adjustment the most.

The country's stock trading stamp duty rose to 200.5 billion yuan last year, 10 times the 2006 figure, largely because the government tripled the tax rate to 0.3 percent at the end of last May.

The hike was ostensibly meant to cool the bull market which looked almost unstoppable at that time. It did deliver some immediate results. The benchmark Shanghai Composite Index made about a 10 percent correction at the level of 4,000. But it peaked above 6,000 late last year before falling back to that level again today.

It has become all too clear that, except boosting the national coffer at the expense of investors, the stamp tax hike has done little to cool market sentiment.

The current plunge of the market may make it appealing to cut the stamp tax for stock trading from bilateral to unilateral to boost investor sentiment.

But legislators should not revise related taxation laws merely to meet such short-term needs.

Instead, they should fix taxation legislation in a once-and-for-all way to prevent unnecessary variation of taxes in future. After all, a predictable market environment is much more important to the stable development of the stock market.

(China Daily 03/04/2008 page8)