China will not abolish interest tax in the near future, said Liu Shangxi, deputy director of the research institute of fiscal science under the Ministry of Finance.

 

"Interest tax plays a role of narrowing residents' income gap by using the collected money to improve low-income people's lives," said Liu.

 

China launched interest tax on November 1, 1999, in a bid to expand domestic consumption. The 20-percent tax rate did not change in nearly seven years.

 

Some experts believe that with price rise and low interest rates for deposits, interest tax leaves less and less profit for deposit owners.

 

The interest rates for deposits did not change along with the recent hike of interest rates for loans, which has made depositors more unhappy with the 20-percent tax rate.

 

Rich people have far more deposits than ordinary residents and pay more tax for their money reserved in banks, said Liu, adding that the interest tax revenue every year which is billions of yuan will help realize a fair distribution of wealth.

 

But he also said that the role of interest tax in encouraging domestic demand has become weak as the bad social security system has discouraged residents from spending. People would save their money in banks whether there is interest tax or not, the expert said.

 

A recent survey made by Horizon Research Consultancy Group shows that 42.9 percent of Guangzhou citizens hoped interest tax would be abolished. They said only people with relatively low incomes would save their money in banks and rich people would choose investment. Therefore, interest tax could not help to bridge the income gap.

 

(Xinhua News Agency May 18, 2006)