China will not abolish interest tax in the near future, said Liu
Shangxi, deputy director of the research institute of fiscal
science under the Ministry of Finance.
"Interest tax plays a role of narrowing residents' income gap by
using the collected money to improve low-income people's lives, "
said Liu.
China launched interest tax on Nov. 1, 1999, in a bid to expand
domestic consumption. The 20-percent tax rate did not change in
nearly seven years.
Some experts believe that with price rise and low interest rates
for deposits, interest tax leaves less and less profit for deposit
owners.
The interest rates for deposits did not change along with the
recent hike of interest rates for loans, which has made depositors
more unhappy with the 20-percent tax rate.
Rich people have far more deposits than ordinary residents and
pay more tax for their money reserved in banks, said Liu, adding
that the interest tax revenue every year which is billions of yuan
will help realize a fair distribution of wealth.
But he also said that the role of interest tax in encouraging
domestic demand has become weak as the bad social security system
has discouraged residents from spending. People would save their
money in banks whether there is interest tax or not, the expert
said.
A recent survey made by Horizon Research Consultancy Group shows
that 42.9 percent of Guangzhou citizens hoped interest tax would be
abolished. They said only people with relatively low incomes would
save their money in banks and rich people would choose investment.
Therefore, interest tax could not help to bridge the income
gap.
(Xinhua News Agency May 18, 2006)