Transaction Tax Considered in China

January 7, 2014 Taxation in China

BEIJING – China is looking to use new tax measures to reduce excessive currency fluctuations and to eliminate unwarranted market risks.

Late last week in an article in Quishy, a publication of the Central Committee of the Communist Party of China, the head of the State Administration of Foreign Exchange of China Yi Gang said that new studies will be conducted into the feasibility of introducing a tax on certain currency exchange transactions.

The potential tax, which is similar to the so-called Tobin Tax, would be levied on all spot conversions of RMB to another currency, and is designed to reduce the potential profits on high-risk speculative currency trading.

According to Yi Gang the tax could coincide with the government’s intention of “… pushing forward capital market opening, improving and perfecting the foreign debt management system and accelerating the advance of renminbi capital account convertibility.”

Alongside the Tobin tax, other currency measures will be investigated, including “…fees on foreign exchange trading and curbing short-term speculative fund flows”.

Academic researchers in China have already commented on the potential benefits of the tax, saying that the tax would be a “…market-oriented way to cut down foreign exchange speculation”.

However, some experts have already noted that the introduction of new means to control currency fluctuations in China is counter to the government’s previously promised intentions to loosen the grips on the country’s currency.

Photo by: Andreas Poike