Expert suggests interest tax abolishment

The interest tax on personal savings deposits should be abolished this year, Liang Yanjun, a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC) suggested recently, the Beijing News reported on Thursday.

Liang, also professor of the Tianjin Institute of Finance and Economics, said China has changed its continuous deflation into low-grade inflation, with Renminbi deposit interest rates dropping to the lowest level since 1949, when the People's Republic of China was founded.

Considering the inflation index, the deposit interest rate in China is actually a negative figure, and although the central bank raised the interest rate from October last year, the situation has not been changed, Liang said.

The 20-percent interest tax on bank savings harms economic development, Liang said.

China began to levy income taxes on interest earnings from personal savings deposits on November 1, 1999, so as to stimulate consumption and investment.

Yi Xianrong, a prestigious financial expert with the Chinese Academy of Social Sciences (CASS), suggested a discriminatory interest tax system, with higher interest tax rates upon wealthy people's deposits, the Beijing News said.

In 2004, China's revenue on interest tax totaled 32.076 billion yuan (3.96 billion US dollars), so it is impossible for the country to simply abolish such tax, said Zhang Wenchun, an expert with the Chinese People's University.

China should unify the current various tax rates for different types of incomes into one single tax rate on all incomes, with deposit interest included in the individual income tax account, Zhang said.

Source: Xinhua