Capital Gains Tax

No tax yet on property or stock gains, official says

PUBLISHED : Sunday, 18 November, 2007, 12:00am
UPDATED : Sunday, 18 November, 2007, 12:00am

The tax authority has no immediate plans to impose tax on gains from shares and property trading despite requiring high-income earners to declare such earnings, a mainland news report has said.

'We only adjusted the method of declaration, which would require more details than in the past, but we have not said we would impose a tax,' said an official at the State Administration of Taxation, according to

The tax bureau issued revised guidelines last Friday, saying that from the start of next year, people with an annual income exceeding 120,000 yuan would have to declare their earnings from stocks and property investments.

Those who had a loss on investments have to declare their profit as zero, and the shortfall could not be offset from their regular income.

About 1.7 million mainlanders earn more than 120,000 yuan a year.

The guidelines had prompted fears that a capital gains tax from shares and property might be round the corner to cool the overheated capital market.

Shanghai's composite index had surged more than 130 per cent since the middle of last year, while average property prices in 70 cities rose 9.8 per cent last month from a year ago.

'It can't be ruled out that the mainland authority may impose a capital gains tax in the future, but I think the recent move is to collect more data for analysis,' said Frances Cheung, an economist at Standard Chartered Bank.

Ms Cheung said it was common for governments to have a detailed analysis before imposing any measures. 'They need to know how much the gains from investments account for residents' incomes and what the impact will be if such a tax is imposed,' she said.

The tax law, issued in 1994, states that 20 per cent of income from share investments must be paid to the government, but the rule was put on hold to boost the stock market.

'I think it's more a gesture than a real intention to impose a capital gains tax,' another analyst said.

The authorities wanted to cool the overheated investment market instead of killing it, he said. The tax bureau's guidelines might be part of a psychological tactic to curb speculation and illegal activities.

He said the mainland stock markets were unlikely to rebound significantly tomorrow as there were still other uncertainties. The market was still worried about another interest rate hike after the latest official data showed the mainland recorded its fastest growth in urban fixed asset investment from January to October.

Mainland stocks suffered the sharpest fall in a decade on February 27, dipping about 9 per cent as rumours of a possible capital gains tax and further efforts to curb liquidity encouraged A-share sales.