By Deng Yuwen (China Daily)
Updated: 2007-12-04 14:42

A circular was issued to the effect that starting from January 1 next year, all individual taxpayers must report their incomes to the authorities using a new tax form. They will be required to state their income from stocks and property investments.

The circular of November 15, issued by the State Administration of Taxation (SAT), triggered stock market fears which caused the market to slump that day.

The SAT soon issued a clarification that the collection of taxes on stock investments would be suspended in an effort to ease market panic.

It was not the first time that the market had been alarmed by the possible collection of taxes, nor was it the first time that the SAT had issued such a clarification.

Every time there is a report about a tax on investment income, the market panics. The latest market fears have been cooled by the clarification, yet the market is still wondering when this tax will be enforced as SAT has only said it has been "suspended". Some analysts speculate it will be formerly introduced next year.

But this is unlikely, as numerous preparations have to be made such as establishing a database on individual stock investors.

Moreover, whether or not a tax should be imposed is a decision for the National People's Congress, rather than any administrative department. And submissions, discussions and reviews by the congress to the suggested tax plan will take time because of its complex nature. These procedures have yet to get underway.

However, the market would welcome any news about the new tax, instead of being kept waiting in anticipation. This could cause dramatic market fluctuations at any time.

Taxes collected on the income from securities, estate or other investments belong to the category of income tax. Currently, the waived amount in calculating an individual's income tax on salary is so low that China's income tax is much greater than that of many countries.

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