Experts Urge China To Scrap Tax On Interest

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

28 October 2003

Chinese economists are calling on the government to scrap tax on interest payments and raise income tax thresholds in a bid to boost the country’s consumer goods market, the China Daily reported on Monday.

Zhang Peisen, a senior tax expert at the Taxation Research Institute, part of the State Administration of Taxation, explained that the introduction of interest tax has failed in its intention to boost consumption, adding that a “lack of investment channels has seriously curbed the use of private money."

Zhang notes that there is still a greater propensity, particularly amongst those in rural areas, to save money in bank deposits, as they cannot rely on the social security system to help in times of need.

Meanwhile, Zhang Xueying, a senior economist with the State Information Centre, indicated in the same report that the government is likely to drop the interest tax and possibly raise interest rates in the latter half of 2004.

Last week, the Chinese government announced that it is to change the emphasis of its value added tax regime from production to consumption in a bid to assist technology and capital intensive industries. This is part of a package of new tax reforms that will include measures such as changes in the financial supervision rules and simplifications of the tax code, including harmonization of rural and income taxes, and enterprise tax unification.

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