"The country should lower the stamp duty rate, because the higher rate has held back many investors' entry into the market," said Dong Chen, an analyst with the China Securities Co Ltd.

Meanwhile, China's economy will develop further and more foreign investors will join the country's stock markets after its accession to the World Trade Organization, Dong said.

Western countries usually impose a 0.1 per cent stamp duty or do not levy it at all, he said.

China imposes a rate of 0.3 percent in A-share trading, and 0.4 percent for B shares.

"China's fledgling stock markets need incentives to promote development," he said.

Yang Siqun, an expert with the Chinese Academy of Social Sciences, said China should gradually reduce the stamp duty levied on both brokers and stock investors and ultimately eliminate the duty to develop its capital market.

"A drop in the stamp duty rate helps lower transaction costs and boost transactions," Yang said. "This would be helpful to the development of China's fledgling stock markets."

Statistics indicate that the income from China's stamp duty reached 38.8 billion yuan (US$4.7 billion) during the first three-quarters of this year, an increase of 82 percent on the same period last year.

The increased income was mainly a result of expanded transactions, because the stamp duty rate was lower than last year's, Yang said.

Securities analysts said that a drop of 0.5 percent in the rate of stamp duty would lead to a 5 percent rise in the stock prices and a 40 percent rise in transactions.

"A drop in stamp duty rate will not result in a decline in stamp duty income," Yang said.

It would be short-sighted if a government relied heavily on stamp duty, Yang said, adding the major tax items in Western countries are value-added tax and income tax.

However, an official with the Ministry of Finance said that the stamp duty rate must be relatively stable to maintain the healthy development of the stock market.

China's securities market has yet to improve, as speculation sometimes occurs, the official said.

"Not only should the investors themselves be responsible for their gains and losses, the government is also responsible to ensure the stable development of the market," the official said.

Frequent adjustment of stamp duty will increase investors' risks, which harms the market and social stability, he said.

Liu Zuo, deputy director of the Taxation Science Research Institute under the State Administration of Taxation, earlier said it was unlikely that China would eliminate stamp duty in the near future, as that would put pressure on the country's finances.

"How does the central government manage to make up the tax income deficiency, when the country's finances have already been in the red?" Liu said.

Meanwhile, it is easier for the government to levy a stamp tax than an income tax. "Stock investors usually can bear the burden," he said.

(China Daily 12/25/2000)