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Strong support for proposal to scrap interest tax: survey

By Liu Jie (China Daily)
Updated: 2007-03-30 15:45

Most people believe the 20 percent tax on personal savings interest should be scrapped, according to a survey conducted by China Daily's website.

At this year's National People's Congress and Chinese People's Political Consultative Conference (CPPCC), 28 CPPCC members called on the government to drop its tax on savings interest to protect low-income earners, who make up the bulk of depositors in China.

In a poll conducted by China Daily's website (www.chinadaily.com.cn), 68.46 percent of the 1,116 respondents, or 764 people, said the tax should be dumped, while 22.85 percent or 255 did not support the proposal, and the rest said they had no comment.

The tax on savings deposit interest for all renminbi and foreign currency accounts opened by individuals at Chinese banks was introduced in 1999, in a bid to reduce mounting individual savings and stimulate consumer spending.

Seven years on, the central bank said China's renminbi savings deposits were 16.16 trillion yuan (US$2.09 trillion) at the end of last year, up 12.93 percent on the previous year.

Meanwhile, the tax levied by the central government has increased from 20 billion yuan in 1999 to over 40 billion yuan in 2006.

According to the CPPCC members' proposal, the tax on interest failed to discourage people from depositing money into savings accounts. Nor did it stimulate consumer spending, with the consumption rate dropping to a record low of 51 percent last year.

Further, the macroeconomic environment has greatly changed over the past seven years, and China's economy has grown out of deflation, the proposal said.

"The motivation for the interest tax to reduce bank savings, boost consumer spending and curb deflation no longer exists. Therefore, it seems unnecessary to continue the policy," it said.

Some netizens said the policy mostly affected low-income earners. One respondent said that the affluent invested their money into other channels, but the poor, especially the elderly, tended to save their money in banks.

"In China, the rich don't rely on interest income to increase their wealth. Instead they invest or go for high-paying speculation activities," said another respondent. "Wage earners and the poor rely on interest income to increase their money, so the interest tax only hurts the poor."

Respondents said the savings interest tax was unfair to low-income earners the majority of bank savings depositors in China.

They also said that, taking into account both inflation and the interest tax, the real interest rate on bank deposits was actually negative so it was time to abolish it.

One respondent suggested the central authorities cut the current taxation rate on personal savings earnings from the current 20 percent to 10 percent, and after a grace period of one to two years the policy could be abolished.

"As inflation is rising to nearly 3 percent a month, it is time for the central bank to consider halving the tax, and ultimately to get rid of it," another netizen said. "Otherwise, the interests of bank depositors will be harmed, because the savings rate, less than 3 percent, will not keep pace with inflation."

Another netizen said the government could adopt different tax rates for rich and poor.