Chinese Mandarin - China slashes tax on interest income

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BIZCHINA / Center

China slashes tax on interest income

(Xinhua)
Updated: 2007-07-20 19:25

China's State Council announced Friday to reduce the tax on interest
income from 20 to 5 percent as of August 15.

The move is to adapt to changes in China's economic and social situation,
the State Council, or cabinet, said in a statement.

It received authorization to scrap or cut the tax for banking savings
from the Standing Committee of the National People's Congress on June 29.

Experts say the move aims to narrow the gap between deposit rate and
inflation to make bank savings more attractive and to curb the excess
liquidity.

The reduction in interest income tax will increase earnings from bank
savings and is conducive to the economy featured now by rapid increases
in investment and rising inflation, the State Council said in a news
release.

China's gross domestic product grew by 11.5 percent year-on-year in the
first half of 2007, 0.5 percentage point higher from the previous year,
and the fixed assets investment soared 25.9 percent, the National Bureau
of Statistics said on Thursday.

The consumer price index (CPI), the main gauge of inflation, rose 3.2
percent year-on-year in the first half of this year. In June, the CPI
jumped by 4.4 percent from a year earlier, the highest in 32 months and
well above the government's target of 3 percent for 2007.

China began to levy tax on bank savings in November 1999. In the past
eight years, the tax has played a positive role in encouraging
consumption and investment, adjusting personal earnings and increasing
fiscal revenues, said the news release.

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