Chinanews, Shanghai, Feb. 28 – Chinese stock market witnessed the largest drop yesterday. Many people attributed the stock dive to the hearsay that government would levy tax on gains made by stock holders through the transfer of their stocks. A reporter from the Shanghai Securities Journal tried to confirm the news with officials at the Ministry of Finance and the State Administration of Taxation on Tuesday and they both denied the news.

 

Earlier, the State Administration of Taxation required Chinese individuals who had made an annual total income of over 120,000 yuan (including income made through stock transfer) to report their income to the government. An official from the Information Office at the State Administration of Taxation said yesterday that it is not right to equate such requirement with the thinking that Chinese government will levy individual income tax on people who make gains through stock transfer. The official said that the State Administration of Taxation had already clarified this issue at the beginning of this year, and that at present, the State Administration of Taxation will not impose any tax on gains made through stock transfer.

 

According to regulations on individual income tax, the gains made by stock holders through stock transfer are defined as income from transfer of property, and such income should be subject to a 20% rate of tax payment. However, in order to encourage more Chinese enterprises to list on the stock markets and promote the healthy development of Chinese stock market, the Ministry of Finance and the State Administration of Taxation, upon the approval of the State Council, decided that starting from 1994, Chinese government would waive such income tax of Chinese individuals.

 

“We require high income earners to report their income to the government, which is in line with the revised Chinese regulation on individual income tax. Although people who make their annual income of over 120,000 yuan through stock transfer should also report their income as required, Chinese government will not levy individual income tax on this group of people at present. It is two different things to report stock transfer gains and to levy tax on such gains. So far, such policy has not changed,” said the official.

 

His words were also confirmed by an official from the Information Office of the Ministry of Finance, who claimed that the Chinese government would not levy tax on stock transfer gains. The official reminded Chinese investors not to believe such rumors.