China should make a long-term plan to remove stamp duty and levy capital gains tax on securities trade, a former top tax official has said.

Such a move would benefit small and medium-sized investors and help develop a healthier, mature stock market, Xu Shanda, former deputy commissioner of State Administration of Taxation, was quoted by Tuesday's Shanghai Securities News as saying.

It was unfair that small investors, who tended to buy and sell shares more frequently and were more liable to losses, had to pay heavy stamp duties, while institutional investors were charged less on stock trade and could have big profits untaxed in China, said Xu.

"With stamp duty replaced by capital gains tax, those small and medium-sized investors who have lost money in stock markets wouldn't have to pay any taxes," Xu said.

The suggested policy might "more or less" undermine the interests of institutional investors but save them taxes during losses, too, he said.

He disagreed with views that collection of capital gains tax could heavily dampen Chinese investors' sentiment, saying most foreign governments levied capital gains tax on their securities market without imposing a stamp duty.

"As long as the government give investors enough time to prepare for it psychologically, a capital gains tax won't deal a heavy blow to the market," said Xu, who advised a clear timetable and a gradually increased rate up to 20 percent for the tax.

Investors and experts have called for a stamp duty cut to shore up China's stock market, which had declined steeply before seeing a strong rebound last Thursday.

China tripled the stamp duty rate to 0.3 percent last May to rein in a heating market, but recent index plunges have raised rumors of a stamp duty cut, which analysts said had encouraged some speculative activities.

Xu noted cutting stamp duty rates could only pull up share prices for one or two days but would not reverse a downward movement.

China's stamp duty revenues rocketed by more than ten times to 200.5 billion yuan (28.6 billion U.S. dollars) last year, when the benchmark Shanghai Composite Index reached an all-time high of 6,124.04 points.

The index has shed about 40 percent since then and slumped to a year earlier level last Tuesday. It started to rally last Wednesday and closed 0.36 percent higher at 3,612.54 on Tuesday.

(Xinhua News Agency April 9, 2008)