BEIJING -- The draft bill that would authorize the State Council to suspend or cut the longstanding tax on interest earned on personal savings is likely to be adopted by China s national legislature when its Standing Committee ends a weeklong session on Friday.
Yang Jingyu, chairman of the Law Committee of the National People s Congress (NPC), said on Thursday that the majority of the150 lawmakers had agreed with the proposed authorization and suggested the bill be put to a vote in this legislative session.
Yang said the draft amendment to the income tax law said: "The imposure, suspension or reduction of interest tax on bank savings, as well as specific methods thereon, are subject to the decision of the State Council."
The existing provision adopted in August 1999 reads: "The timing and method of taxing interest earned on savings accounts are dependent on the State Council." Later that year, China began to levy a 20 percent tax on interest earned on personal savings.
By the end of 2006, the tax had generated 214.6 billion yuan (about 28 billion U.S. dollars).
The benchmark one-year deposits carry an interest rate of 3.06 percent. However, given the 20 percent interest tax, the actual yield is just 2.45 percent.
That return is below the inflation rate as measured by the consumer price index, which hit a two-year high of 3.4 percent after rising three percent in April and 3.3 percent in March.
In recent months, China has seen large sums of money flow from deposit accounts into stock trading accounts.
Central bank statistics showed that China s household deposits posted the largest monthly drop in May, decreasing 278.4 billion yuan.
A bull stock market and soaring housing prices had made many people realize that the yield on bank deposits was simply too low, said Huang Fuguang, a finance professor at Tianjin-based Nankai University.