Plan would cut taxes on cash dividends

The China Securities Regulatory Commission aims to eliminate double taxation of listed companies' cash dividends, a senior agency official said on Monday.

Wang Lin, director-general of the CSRC's fund supervision department, said the commission is studying the issue and discussing the idea with other parts of the government. The move is intended to invigorate the capital market and benefit investors.

He said tax breaks will more likely be targeted at institutional investors, including investment funds.

"China's taxation system was established when its capital market was very small the CSRC is now looking closely at taxes related to the capital market," said Wang. He made the comments on the sidelines of a forum in Shanghai.

China levies a 25-percent corporate income tax on profits. It also imposes a 10-percent tax on cash dividends paid to individual investors.

For some enterprises, cash dividends are included in taxable income when calculating corporate income tax obligations. The rules effectively tax cash dividends twice, diminishing investment returns.

Additionally, China also levies a 0.1-percent stamp tax on stock market transactions.

Last year, companies paid about 45 billion yuan ($7.1 billion) on dividends as part of their corporate income tax, according to the State Administration of Taxation. That compares with the country's more than 10 trillion yuan in fiscal income last year.

Public companies in China have been widely criticized for being reluctant to pay cash dividends. Guo Shuqing, the commission's chairman, has made repeated calls for public companies to raise their dividends.

Analysts said lowering the levy on cash dividends could prompt public companies to pay more. "That will definitely be an incentive for them (public companies) to pay out more cash," said Wang Jianhui, chief economist with Southwest Securities Co Ltd.

Lowering the levy on cash dividends, Wang added, would also provide a practical and legal way for controlling shareholders to extract cash from public companies, preventing them from resorting to hidden related transactions and other illegal practices.

gaochangxin@chinadaily.com.cn