CSRC mulls new dividend taxes

The China Securities Regulatory Commission (CSRC), the country's securities regulator, is considering introducing a new dividend tax scheme which would tax mainland retail investors based on the length of time they hold their shares in order to discourage speculative short-term investment moves, the China Securities Journal (CSJ) reported over the weekend, citing an insider within the CSRC.

The insider told the CSJ specifically that the new rates would vary depending on whether an investor's shares were held for less than one month, between one month and 12 months, or over 12 months. No specific rates were mentioned.

At present, a flat tax rate of 10 percent is levied on the dividends investors receive annually.

Experts contacted by the Global Times though were skeptical about whether a staggered dividend tax system would have much effect stamping out the prevalence of short-term stake holding at China's stock exchanges, where as many as 70 percent of mainland stock investors sell off their shares within six months of purchase, according to a survey conducted by the Shenzhen Stock Exchange last year.

Short-term trades, when they occur with the high rate of frequency seen at mainland bourses, intensify fluctuations within the market, and this is the problem that China's securities regulators need to tackle right now, Zhang Xin, an analyst with Shanghai-based Guotai Junan Securities, told the Global Times.

For most investors in the mainland capital market, short-term trades are motivated more by concerns about the deficiencies of listed firms and the weak market climate, rather than worries about high dividend taxes, She Minhua, an analyst with Zhong De Securities, told the Global Times.

With mainland bourses being among the world's worst performing since 2008, the majority of local retail investors are unable to withstand the risks of holding their stakes for long, She said.

Few market participants take stakes in listed firms because they are confident in their success over the long-run; instead, most investors only buy when the government pledges its support to a certain sector or industry and then sell their positions when overbought concerns surface, She explained.

"The recent dividend tax reduction is only a symbolic gesture aimed at a market dominated by short-run-trading," said She.

Zhang echoed She's sentiments, and pointed out that few mainland-listed companies pay dividends to their shareholders, meaning that any tax breaks given to the investing public would be negligible.

In 2010, the dividend yield ratio of enterprises listed at mainland stock markets reached around 0.6 percent, lower than the 1.5 percent average seen in most overseas markets, according to figures from Wind, a financial data provider.