Last May, the Chinese government tripled the stamp duty on stock transactions to 0.3 percent, applicable to both buyers and sellers of shares. As the market started to fluctuate late last year, investors turned anxious over what action the government may or may not take.

"We don't have a complete tax system for the stock market and some current rules don't help much to protect small investors," said Wu Zhiguo, a Guohai Securities Co analyst. "It will be encouraging if the country can work out plans to develop a mechanism for the long haul."

The surprise action to increase the stamp duty last year dented the key stock index by as much as 20 percent at the time. Although equities recovered later, investors still complained that they were faced with uncertainty over trading costs.

Last year, stamp duty collected on equity transactions totaled 200.5 billion yuan (US$28.20 billion), soaring more than 10 times over the amount of a year earlier, according to official state tax data.

A large number of Chinese mainland citizens have expressed hopes that only one side - rather than both - be required to pay the stamp duty and that a 20-percent tax charged on the dividends paid by listed firms to investors should be scrapped.

"I believe what's more important is to have an apparent system to decide when to raise or slash trading costs," said Wu Ke, a Zhongtian Investment Consulting Co manager, who conducts investments for retail clients.

The proposal also called for the drafting of detailed tax arrangements for the fledgling bonds and futures markets and streamlining procedures to avoid repeated duty levying.

"The aim of the reform should be focused on setting up a tax system with fairness and targeting different sectors of the capital market," it said, noting a capital gains tax should be only adopted when the timing is right.

(Shanghai Daily March 4, 2008)