Beijing could reap $40bn tax bonanza
Saturday, 9 June 2007
Geoff Dyer from Shanghai and Jamil Anderlini from Hong Kong
CHINA will gain an annual windfall of as much as $40bn from the tax increase on share trading announced recently -- almost equal to the official defence budget -- if turnover on mainland markets stays at its current striking levels.
The huge potential bonanza of revenue from the tax increase is equivalent to about 7.0 per cent of the total central government annual budget and could help accelerate Beijing's plans to expand social spending in rural areas.
The boost to revenues is the result of an increase in the stamp duty on share-trading that the government announced in a bid to take some of the steam out of the stock market, which many analysts believe is overvalued.
The tax on each share trade was increased from 0.1 per cent to 0.3 per cent, pushing the market down 6.5 per cent. But since then it has remained roughly flat in volatile trading.
"In principle, this means there ought to be a lot more money available for rural spending, but the question is whether there is enough political consensus within the government to actually do that," said Arthur Kroeber, Beijing-based editor of the China Economic Quarterly.
The potential multibillion-dollar revenue inflow underlines the remarkable increase in share-trading in Shanghai and Shenzhen this year, which has seen the mainland markets on some days record higher turnover than the rest of Asia -- including Japan -- put together.
The high trading volumes are the result not only of optimism from a new generation of Chinese retail investors who have flocked to open trading accounts but also of considerable investment in the market by companies and government agencies with surplus cash.
Mr Kroeber said that if the bulk of the trading volumes were coming from companies, which he suspected was the case, then the tax amounted to a reallocation of funds from corporate savings to public finances.
The increase in the tax was partly designed to dampen the feverish speculation that has been witnessed in recent weeks and if the policy is successful over the next few weeks, then turnover will drop.
However, even with daily trading of half the volume seen in the wake of the government announcement about the new measure relating to enhancement of stump duty on share-trading, which was a record at $53bn, the extra income from the tax hike would be around $23bn. The sales tax on share trading raised only Rmb18bn ($2.3bn) last year.
If current turnover levels had been seen throughout 2007, the tax would have raised $20bn at the original tax rate. After the latest increase, the tax could raise $60bn annually.
A windfall gain of $40bn is equivalent to almost four times the central government's planned spending this year on education.
The official defence budget for 2007 is Rmb350.9bn, an 18 per cent increase on last year. The Pentagon estimates that China's real defence spending is as much as three times higher.
...............................
Under syndication
arrangement with FE
CHINA will gain an annual windfall of as much as $40bn from the tax increase on share trading announced recently -- almost equal to the official defence budget -- if turnover on mainland markets stays at its current striking levels.
The huge potential bonanza of revenue from the tax increase is equivalent to about 7.0 per cent of the total central government annual budget and could help accelerate Beijing's plans to expand social spending in rural areas.
The boost to revenues is the result of an increase in the stamp duty on share-trading that the government announced in a bid to take some of the steam out of the stock market, which many analysts believe is overvalued.
The tax on each share trade was increased from 0.1 per cent to 0.3 per cent, pushing the market down 6.5 per cent. But since then it has remained roughly flat in volatile trading.
"In principle, this means there ought to be a lot more money available for rural spending, but the question is whether there is enough political consensus within the government to actually do that," said Arthur Kroeber, Beijing-based editor of the China Economic Quarterly.
The potential multibillion-dollar revenue inflow underlines the remarkable increase in share-trading in Shanghai and Shenzhen this year, which has seen the mainland markets on some days record higher turnover than the rest of Asia -- including Japan -- put together.
The high trading volumes are the result not only of optimism from a new generation of Chinese retail investors who have flocked to open trading accounts but also of considerable investment in the market by companies and government agencies with surplus cash.
Mr Kroeber said that if the bulk of the trading volumes were coming from companies, which he suspected was the case, then the tax amounted to a reallocation of funds from corporate savings to public finances.
The increase in the tax was partly designed to dampen the feverish speculation that has been witnessed in recent weeks and if the policy is successful over the next few weeks, then turnover will drop.
However, even with daily trading of half the volume seen in the wake of the government announcement about the new measure relating to enhancement of stump duty on share-trading, which was a record at $53bn, the extra income from the tax hike would be around $23bn. The sales tax on share trading raised only Rmb18bn ($2.3bn) last year.
If current turnover levels had been seen throughout 2007, the tax would have raised $20bn at the original tax rate. After the latest increase, the tax could raise $60bn annually.
A windfall gain of $40bn is equivalent to almost four times the central government's planned spending this year on education.
The official defence budget for 2007 is Rmb350.9bn, an 18 per cent increase on last year. The Pentagon estimates that China's real defence spending is as much as three times higher.
...............................
Under syndication
arrangement with FE