Panel suggests scrapping 20pc tax on bank interest

PUBLISHED : Sunday, 11 March, 2007, 12:00am
UPDATED : Sunday, 11 March, 2007, 12:00am

Twenty-seven political advisers, including the nation's top bankers and economists, have urged the government to scrap the tax on bank savings interest, saying it hurts low-income families and dampens domestic consumption.

Guo Shuqing, an Chinese People's Political Consultative Conference delegate and chairman of China Construction Bank, said the tax affected people who had little money and favoured banks rather than high-risk investments.

'Rich people with huge bank savings don't care much about the tax. But to people with low and middle incomes, the tax has affected their interests,' said Qin Xiao, chairman of the China Merchants Group.

The 20 per cent levy on interest was imposed in 1999 on all yuan and foreign currency saving accounts in mainland banks to discourage individual savings, boost consumption and curb deflation.

The current interest rate for one-year time deposits is 2.52 per cent. Consumer prices are expected to rise 2 per cent this year.

Mr Qin said the tax was 'unnecessary' as 'the macroeconomic environment has changed'.