Beijing to retain bulk of stamp duty revenue

China's central government will keep more of the lucrative stamp duty on stock trades and cut the share given to local governments, according to Xinhua.

The move, which means the Shanghai and Shenzhen governments will lose tax revenue, may be tied to the plan to merge China's two stock exchanges, Xinhua quoted securities industry officials as saying.

Beijing has been pushing hard to convince Shenzhen to accept a merger with the Shanghai exchange.

Shenzhen would then become the home of a second board for high-technology firms and start-up companies.

But Shenzhen had been resisting the plan, partly because it would mean a loss of tax revenue.

A reduction in the amount reserved for the local governments made the stamp duty a less critical issue, analysts said.

Shenzhen and Shanghai are now entitled to keep 12 per cent of the duty, which is assessed at 0.4 per cent of the value of all domestic currency A-share trades and 0.3 per cent of all foreign currency B-share trades.

Shenzhen had more than two billion yuan (about HK$1.87 billion) in revenue last year from stamp duty.

Under the new plan, effective from tomorrow, the central government will keep 91 per cent of the stamp duty, up from the present 88 per cent.

The central government's percentage will be increased to 94 per cent next year and 97 per cent in 2002.

Shanghai mayor Xu Kuangdi said in an interview with the South China Morning Post that Beijing was considering an adjustment of the tax split.

He said Shanghai would benefit from the merger of the exchanges primarily from the new business created in the city.

Beijing wants to merge the exchanges so that it can build up one big market for traditional industry, much like the New York Stock Exchange. It also wants to head off plans by both exchanges to set up a technology board.

The nation's expanding stock market has led to steady growth in the government's stamp duty revenue in the past few years.

In the first six months of this year, the government's revenue soared to 147.7 per cent to hit 26.8 billion yuan.

The State Council said the adjustment was aimed at strengthening the central government's capacity to adjust the macro-economy.

Separately, State Planning Commission officials said China would not set up a third stock exchange other than Shanghai and Shenzhen. The officials said the decision was made to avert overlaps of the stock markets.