Experts are divided on whether the rate of stamp duty should be cut to spur the country's flagging share market.
The latest issue of Beijing-based Securities Market Weekly said the State Administration of Taxation had submitted a research report to the State Council calling for lower stamp duty rates.
Lower stamp duty would bring a boost to the depressed stock markets, the report said.
Market observers and tax experts were unaware of the proposed adjustment.
But they suggested the country should gradually lower the stamp duty rate.
"China should reduce the stamp duty levied on both brokers and stock investors step by step and ultimately eliminate the duty to develop its capital market," said Dong Chen, an analyst with the China Securities Co Ltd.
He added China's economy would develop further and more foreign investors would join the country's stock markets after its accession to the World Trade Organization.
Western countries usually impose a 0.1 percent stamp duty or do not levy it at all, he said.
China imposes a rate of 0.3 percent in A-share trades, and 0.4 percent for B shares.
"China's fledgling stock markets need incentives to promote development," Dong said.
A drop in the stamp duty rate helps lower transaction costs and boost transactions, said Yang Siqun, a professor of Tsinghua University. "This would be helpful for the development of China's fledgling stock markets."
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 the stamp duty rate would not result in a decline in stamp duty income," Yang said.
It would be short-sighted if the government relied heavily on stamp duty, he said, adding the major tax revenue sources in Western countries were value-added tax and income tax.
A research fellow with the Development Research Centre under the State Council said that the stamp duty rate must be kept relatively stable to maintain the healthy development of the stock market.
China's securities market still suffered from speculative activity, he said.
The researcher said it was unlikely that China would eliminate stamp duty in the near future as this would put pressure on the country's finances.
"How would the central government manage to make up the tax income loss, when the country's finances are already in the red?" he said.
It is easier for the government to levy stamp duty than an income tax. "And stock investors usually can bear the burden," he said.
(China Daily 10/10/2001)
