November 16, 2012 / 7:16 AM / 5 years ago

China to apply sliding scale to stock dividend tax Jan. 1, 2013

SHANGHAI, Nov 16 (Reuters) - China will apply a sliding scale to taxes on stock dividends for individuals from January 1, 2013, as authorities struggle to restore investor interest in swooning domestic equities markets.

According to an announcement on the Ministry of Finance's website on Friday, dividends will be taxed at diminishing rates over time.

Dividends from shares held for less than one month will be taxed at 20 percent, while stocks held for more than one month but less than one year will be taxed at 10 percent. For stocks held for over a year, the rate drops to 5 percent.

"The longer investors hold shares, the lower their tax burden is," said the announcement.

"This will encourage long-term investment strategies and suppress short-term speculation."

The tax rate on dividends is currently a flat 10 percent.

Chinese market reformers have carried out piecemeal reforms to transaction fees and other minor regulations this year to encourage investors to return to trading stocks.

Head securities regulator Guo Shuqing has repeatedly criticized the preference of many retail investors to engage in short-term speculation on lesser known tickers, encouraging investors to buy and hold blue-chip shares instead.

These moves have yet to inspire the markets. China's CSI300 index, which tracks the largest tickers on the Shanghai and Shenzhen exchanges, fell to its lowest level this year on Friday. The Shanghai Composite Index is down over 8 percent this year after shedding 22 percent in 2011.

Reporting by Pete Sweeney and Samuel Shen; Editing by Sanjeev Miglani

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