China Hints At Further Dividend Tax Reform

by Mary Swire, Tax-News.com, Hong Kong

07 July 2005

China's Ministry of Finance stated on Tuesday that is considering carrying out further reforms to the country's dividend tax and income tax regimes.

According to the statement posted on the Finance Ministry's website, plans are afoot to "further adjust and enhance current dividend tax and personal income tax schemes". However, the statement did not elaborate further on these proposals.

Last month, the Chinese government announced a number of measures designed to revive investors' interest in the country's flagging stock markets. These included reducing the amount of bonuses and cash dividends subject to the 20% dividend tax by 50%, and temporarily canceling the corporate and individual income taxes and stamp duty for shares involved in the state share reform trial. This trial reform programme seeks to float non-tradable shares previously held by the government, which account for about two-thirds of the domestic stock market capitalisation.

The ministry's statement also reiterates the government's desire to reform income tax, particularly the unification of corporate income tax paid by domestic and foreign-funded firms, which is due to begin sometime after mid 2006.

Presently, domestic firms pay a corporate tax rate of around 33%, while foreign firms pay about 15% tax. The unified tax rate is likely to be set somewhere near 25%, according to previous statements made by Minister of Finance, Jin Renqing.

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