Plan to scrap share-sales tax

PUBLISHED : Wednesday, 14 March, 2012, 12:00am
UPDATED : Wednesday, 14 March, 2012, 12:00am


A senior mainland securities official has proposed scrapping trading tax in the latest sign that Beijing is struggling to prop up the slumbering equities market.

Hou Wailin, chief of the China Securities Regulatory Commission's (CSRC) Guangdong branch, said the mainland should phase out stamp duty on selling shares, at least temporarily, as a way to bolster investor confidence.

The remarks by Hou, a Chinese People's Political Consultative Conference member, showed that the regulator was reviving what has long been billed as 'the most powerful weapon' to orchestrate a rally following two years of sharp falls on the stock market.

Beijing now imposes a 0.1 per cent tax on the sales of shares, while stock buyers are exempt from paying stamp duty.

If the tax is phased out, investors will save on share trading costs, but the impact would be minimal.

'The cancellation of the 0.1 per cent tax is of little help,' Essence Securities analyst Liu Jun said. 'But it will be psychologically important because investors will believe that the government is determined to rescue the market.'

China is well versed in the tactic of slashing stamp duty to underpin sluggish stock markets.

In 1990, Beijing introduced a 0.6 per cent stamp duty on both share purchases and sales.

The last time Beijing cut stamp duty was on September 19, 2008, when the Ministry of Finance scrapped the tax on buying shares.

The Shanghai Composite Index jumped 9.46 per cent that day with nearly all stocks listed soaring by the 10 per cent daily trading limit.

But the rally was short-lived, with a subsequent decline in the following months.

Between September 20, 2008 and December that year, the market saw a 12.3 per cent loss.

In the state-owned Oriental Morning Post, Hou said scrapping the tax in a bearish market could be a makeshift measure, while the stamp duty would be reinstated if a bull run occurred.

The Shanghai indicator has been among the world's worst-performing indexes in 2010 and 2011.

It slumped 14.3 per cent in 2010 before tumbling another 21.7 per cent the next year.

Newly appointed CSRC chairman Guo Shuqing has been striving to shore up investor confidence since taking office in late October 2011. In February, Guo gave his strongest verbal support to the market, calling on investors to buy into the mainland's largest 300 stocks as he predicted an 8 per cent gain this year.

A government-backed China Securities Investor Protection Fund poll showed 78 per cent of retail investors lost money in 2011. It said most people expected the government to roll out incentives, including axing the 0.1 per cent tax.

Top mainland officials are wary of heavy losses by individual investors on the equities market because millions of small players spend their years of savings to bet on stocks. Retail investors' severe losses could result in social disunity as they accuse regulators of being unable to protect their interests.