China plans tax delay to boost investment

SHANGHAI (Reuters) - China is likely to introduce preferential tax policies on pension funds within the year aimed at spurring investment in equity and bond markets, the state-backed China Securities Journal said on Thursday.

The government hopes the new scheme will beef up China's pension system and cut the public cost of supporting the ageing population. Economists estimate that the gap between future liabilities and assets of China's pension funds now stands at 18.3 trillion yuan ($2.87 trillion).

The proposed tax break is intended to encourage pension funds - especially corporate pension funds and commercial annuity funds - to invest more in domestic bonds and equities, the paper said.

It added that the new measure will most likely be a tax delay, but did not say what proportion of tax bills will be postponed or the length of the proposed deferment.

China's insurance regulator has already drawn up the specifics of a tax delay for commercial annuity insurance policies, the Securities Journal said, citing unidentified sources.

The government has announced a series of measures intended to attract more investment into the country's capital markets, including proposing a 50 percent increase size of the total stake that approved foreign investors can hold in listed companies.

China's National Social Security Fund (NSSF), which manages the country's biggest pension fund of 860 billion yuan ($135 billion), saw its annual investment return tumble to 0.8 percent in 2011, from 4.2 percent in 2010, hit by sluggish domestic markets, China Securities Journal reported earlier this month.

(Reporting by Carrie Ho; Editing by Eric Meijer)