China's political advisors are urging the government to abolish the seven-year-long tax on the interest of bank savings, saying that imposing the tax harmed the benefit of low-income families and contributed to the failure to stimulate domestic consumption.
"Rich people with huge bank savings don't care much about the tax. But to people with middle and low incomes, the tax has really affected their interests," said Qin Xiao, one of the 27 political advisors who jointly submitted the proposal.
China began to levy a 20-percent tax on interests of savings deposits since 1999 to all Renminbi and foreign currency savings accounts that individuals opened in Chinese banks, chief for reducing mounting individual bank savings.
"Given inflation and the interest tax, the real interest rate of bank deposits has almost become negative for individual citizens," said Wang Zhaobin, another political advisor and vice chairman of the federation of industry and commerce of Henan Province.
The current benchmark interest rate for one-year deposit rate is at 2.52 percent, according to the People's Bank of China, or the central bank.
Qin, also board chairman of the China Merchants Group, said the interest tax was issued with the purpose of reducing China's bank savings, boosting consumption and curbing deflation in the 1990s.
"But the macroeconomic environment has changed and China's economy has grown out of deflation. Therefore, to continue such a policy seems unnecessary," Qin said.
Renowned economist Wu Jinglian, also member of the National Committee of the Chinese People's Political Consultative Conference, said that the interest tax on savings deposits has failed to reduce individual saving and showed no obvious effects on stimulating domestic consumption.
A recent central bank report indicated that China's Renminbi saving deposits reached 15.97 trillion yuan at the end of November last year, up 15.3 percent year-on-year.
China's high savings rate is attributed to low consumer confidence because of high employment pressures and costly education, housing and medical care, analysts say.
The government has said that it will redouble the efforts to stimulate domestic consumption in 2007, mainly by raising the incomes of farmers and low-income urban families.
(Xinhua News Agency March 10, 2007)