By Hu Xiaocen | 2012-11-17 | NEWSPAPER EDITION
WITH an eye on the depressed capital market, China has approved a policy designed to promote long-term investments while aiming to curb short-term speculation.
The differentiated dividend tax rates will come into effect from January 1 and will benefit long-term investors.
Individual investors will be taxed on their dividends from listed companies according to their shareholding period, the Ministry of Finance said in a statement on its website yesterday.
Investors holding shares for more than a year will pay only 5 percent. Those holding for less than a year but more than a month will pay 10 percent while investors holding shares for less than a month will end up paying 20 percent, the statement said.
In June 2005, the government cut dividend tax for individual investors from 20 percent to 10 percent in a bid to promote the development of capital market.
The new policies aim to promote long-term stability and the healthy development of China's capital market, the ministry said in a separate statement.
The latest move by the regulators comes amid concerns about stalling economy that many fear may hurt corporate earnings.
As of yesterday, the Shanghai Composite Index was headed for a third straight annual loss, already down 8.4 percent this year.
"The differentiated tax scheme adds value to blue-chip stocks, but its impact on the A-share market will be very limited," the securities regulator's Weekly on Stocks reported yesterday.
"The move will have a positive influence on investor behavior which will boost the capital market in the long term," it said.
Fang Sihai, chief economist at Hongyuan Securities, said the new policy is expected to curb market speculation.
"The government intends to rescue the market from a tumble, but the poor performance of the A-share market is not because of speculation. The government should tackle problems like capital market structure and initial public offering mechanism to make a real rescue," Fang was quoted as saying on Hexun.com, a financial web portal in China.
The government will increase the amount of A-shares for overseas investors to boost the capital market.
Guo Shuqing, chairman of the China Securities Regulatory Commission, said earlier this week the quota of Renminbi Qualified Foreign Institutional Investors will be raised by 200 billion yuan (US$32 billion) from the current 70 billion yuan.
Liu Xinhua, vice chairman of CSRC, said that more quotas will be added to the RQFII program to stabilize the development of capital market.
The CSRC also lowered stock trading fees since September by 20 percent and said it was working with other government bodies on a plan to cut the stamp duty on trading shares before the transaction fee cut.