Updated: 2005-06-13
China announced decisions Monday to exempt some equity transactions from stamp tax and dividends from corporate and personal income tax in an effort to boost its bearish stock market.

The endeavor also included to tax only half of dividends for individual investors.

All measures were also conducive to support the experiment to sell non-tradable shares.

According to a document made public by the Ministry of Finance and the State Administration of Taxation, stamp tax will be exempted as from Monday by the central government from equity transactions arising from compensation for holders of tradable shares for a unspecified period in ongoing experiments to solve split share structure.

About two thirds of shares of the domestically listed 1,700 firms are non-tradable, mostly State-owned, and only one third of them are floated. This phenomenon has been described as an issue of split share structure that is partly responsible for the country's sluggish stock markets.

Experts say such an irrational structure has put the public investors at a disadvantageous position than the actual controllers of the listed companies in making corporate policies and disposing of the companies' profits and assets.

The ministry and the tax administration also said they will also exempt holders of tradable stocks from the corporate and personal income tax on shares and cash revenues generated as compensation from holders of non-tradable shares to holders of tradable ones.

In another document issued by the two departments, only 50 percent of the dividends received by individual investors from listed firms will be taxed as part of their taxable personal incomes according to the current tax laws.

China has launched an experiment in early May in a bid to solve the issue as part of the efforts to revitalize the marginalized stock market.

Even China's economy scored an annual growth at more than 9 percent for about two and half decades, the Shanghai Composite Index, which covers yuan-denominated A shares and foreign-currency B shares on one of China's two bourses, has dropped to about half of what it was in 2001.