Ni Hongri, a research fellow with the Development Research Centre under the State Council, said the guildline for China's tax system reform is not aimed at reducing income tax in the near term.

"There are also no signs that the cut in stamp duties may further spur the current market," Ni said.

She noted a decline of 43 per cent in the collection of stamp duties during the first nine months of this year and attributed it to, among other reasons, the slump in the global stock market.

Dong Chen, an analyst with China Securities Co Ltd, said cutting the stamp duty is not an urgent priority, as the government has yet to further regulate the market by measures such as punishing companies that forge or falsify financial data.

"The decline in stamp duties this year is a normal sign, because fewer transactions mean less speculation in the stock market."

But both Dong and Ni suggest that the country lower the stamp duty rate.

"The country should gradually reduce the stamp duties levied on both brokers and stock investors and ultimately eliminate the duty to develop its capital market," Dong said.

China's economy will develop further and more foreign investors will join the country's stock markets after its accession to the World Trade Organization, he added.

Western countries usually impose a 0.1 per cent stamp duty or do not impose levies at all, he said.

China imposes a rate of 0.3 per cent for A-share trading and 0.4 per cent for B shares.

"China's fledgling stock markets need incentives to promote development," Dong said.

A drop in the stamp duty rate helps lower transaction costs and boosts transactions, said Yang Siqun, a professor at Tsinghua University. "This would be helpful to the development of China's fledgling stock markets."

Securities analysts said a drop of 0.5 per cent in the rate of stamp duty would lead to a 5 per cent rise in stock prices and a 40 per cent rise in transactions.

"A drop in stamp duty rates will not result in a decline in stamp duty income," Yang said.

It would be short-sighted if a government relied heavily on stamp duty, he said, adding that major tax items in Western countries are value-added taxes and income taxes.

But he agreed it was unlikely that China would eliminate stamp duties in the near future as that would put pressure on the country's finances.

"How does the central government manage to make up the tax income deficiency when the country's finances have already been in the red?" he asked.

Meanwhile, it is easier for the government to levy a stamp tax than an income tax. "Stock investors usually can bear the burden," he explained.

Earlier, a report by the Beijing-based Securities Market Weekly said the State Administration of Taxation had submitted a research report to the State Council, calling for a lowering of the stamp duty.

(China Daily October 10/29/2001)