The interest tax imposed on personal bank savings has been met
by landslide public objection, a survey reveals.
The survey, conducted jointly by China Youth Daily and
QQ.com, revealed that 93.7 percent of the 6,723 respondents
considered the current interest tax "unreasonable".
"It is unfair to charge us once more with interest tax while we
have already paid personal income tax," a survey respondent
said.
A 20 percent tax on savings interest was introduced in 1999 in a
bid to reduce mounting individual savings.
Seven years on, despite the tax, the Chinese "hobby" of saving
shows no sign of abating as China's renminbi savings deposits
reached 15.97 trillion yuan by November last year, up 15.3 percent
on the previous year.
The tax has also failed to stimulate consumer spending, as
ultimate consumption rate dropped the record low 51 percent last
year.
Opposition to the tax is getting more vocal every year.
According to Chen Liangwen, an economic researcher with Peking
University, China's high savings rate was attributed to low
consumer confidence because of high employment pressures and costly
education, housing and medical care.
"The interest tax levied during the past eight years has proven
not to be useful in simulating consumer spending. It is time for a
change," Chen said.
According to Chen, given inflation and the interest tax, the
real interest rate on bank deposits was virtually negative.
Facing intense calls for abolishing the interest tax, some
officials with Ministry of Finance argued last year that the total
deposits of the wealthy were far greater than those of the poor,
and the affluent paid more tax, for public funds.
But some economists disagree.
"The role of interest tax in coordinating the income gap is
limited," Zhao Xijun, vice-dean of the Finance and Security
Research Institute with Renmin University of China, said.
"Instead, a more effective tool is to increase financial input
into public endeavors."
According to Tan Yaling, a researcher with the Bank of China,
the rich have more investment channels, whereas the poor rely more
on bank savings to make a living.
"The tax chips away at the savings of middle and low-income
families, whereas those with higher wages are relatively
unaffected," Tan told Beijing Youth Daily.
The government should adopt different interest tax rates for the
rich and the poor, he said.
(China Daily March 20, 2007)