Reshaping the Financial Regulatory Framework in China: Improving the Individual Income Tax on Securities Trading

Abstract

China has embarked upon several financial system reforms over the past
decades that are aimed at transforming the nation from a socialist economy to a
market economy. On 17 March 2016, China released its 13th Five-Year Plan (Plan)
which sets out the guiding principles for China's development for the five-year
period from 2016 to 2020. In the midst of the volatility of the stock market, the
Plan stated that China will pursue stronger fiscal and taxation system reforms and
strengthen the securities market. Unlike other developed OECD countries, China’s
financial market is relatively new. Yet China is in a good position since it can learn
from decades of overseas experience. Overseas experience suggests that financial
system reform has to be supported by strong legal and taxation laws. Yet in China
there are few rules governing the taxation of the sales of shares. This article looks
at the taxation of capital gains (CGT) on sales of shares through a comparative
analysis of the tax regimes in Australia and New Zealand. The analysis shows that
there are many lessons China can learn from the CGT experiences of these two
countries.