The Economic Effects And Institutional Reform Of Securities Income Tax

Securities income tax is made up of two parties: securities investment income tax and securities gains tax (capital gains tax). With the development of securities market, there is a trend that securities income tax instead of securities indirect tax becomes the main tax and has deep effect on securities market. This article firstly studies the economic effects of securities income tax, and realizes the main ideas of the reform of securities income tax. Secondly, it compares foreign systems of securities income tax, and analyzes the causes of differences, and seizes the trend of tax system reform. Lastly, according to the present situation of China's securities income tax and surroundings of China's securities market, it gives the main principles and targets of the reform of securities income tax, and makes the perfect institutional design of securities income tax.Dividend is born of stocks, and dividend tax has great effect on capital cost of stocks directly. Because of the dividend tax, the capital cost of stocks is heavier than the capital cost of retained profits, which leads to an unbalance of corporations'capital structure and has harmful effect on economic efficiency. Thus, reforming dividend tax becomes very important. There are two ways for the reform of dividend tax: revising methods of dividend tax and adjusting dividend tax rate. They have differences on the effect of adjusting capital costs of stocks, but the differences are not serious. Treading securities will form capital gains, and capital gains tax is the main tax to govern the securities tread. Capital gains tax affects the decision about saving and consuming between different periods, and changes the selection of capital assets, and has affect on economy development. Capital gains tax has special"Lock-in effect", which is affected by tax rate and returns anticipation. If we can control these factors well, the"Lock-in effect"will not be very serious.There are some trends such as reducing tax rate and simplifying methods in the reform of dividend tax in the world. There are many particulars in dividend tax systems in U.S., U.K. and Australia. These differences come from their different concepts in tax law, and they cause many differences on corporations'financing policies and dividend policies. The common features of their dividend tax reform are simplifying tax system and enhancing efficiency. Capital gains tax is developing quickly in the world. There are some differences in the capital gains tax in U.S., U.K. and Australia. U.S. uses tax rate to realize the efficiency mainly, and the tax system is simple and efficient. U.K. and Australia apply method to realize equity mainly, and the tax systems are difficult and reasonable. These institutional differences are born of their different society policies, law culture and economic surroundings.Today indirect tax has great effect on China's securities market, and securities income tax is short of integrity, and the function of manipulate market is very weak. The rate of dividend tax is high, and cost of stocks is big. Capital gains tax system is short of integrity, and can't realize equity. China's securities market is a gamble market instead of a investment market. Thus, we give some principles of reform such as supporting securities market, balancing the efficiency and equity, encouraging investment and restraining gamble, and make some targets. According to these considerations, we make the institutional design of China's securities income tax. We both consider maturity of the theory and feasibility of system.Besides the introduction, there are six chapters in this article. It mainly contents: Chapter 1, The economic effects of dividend tax on capital cost. Levying dividend tax changes the cost of stocks, which is often heavier than the cost of retained returns. Thus, adjusting dividend tax is very important. There are two ways: one way is revising method of dividend tax, and using dividend partial inclusion method or imputation method to relief or eliminate the double taxation of dividend. The other way is reducing dividend tax rate to lower cost of stocks. There are some differences on cost of stocks, but the differences are not serious.Chapter 2 The economic effects of Capital gains tax. Capital gains tax affects the decision about saving and consuming between different periods, and changes the selection of capital assets, and has effect on economy development. Capital gains tax also has special"lock-in effect", which is affected by tax rate and returns anticipation. If we can control these factors well, the"Lock-in effect"will not be very serious. Thus, we should levy capital gains tax, and give some preferences, to realize equity and efficiency.Chapter 3 Foreign dividend tax system and its reform. There are some trends such as reducing tax rate and simplifying methods in the reform of dividend tax in the world. The main differences lie in tax rate and method in U.S., U.K. and Australia dividend tax. U.K. has double taxation on dividend, but it designs preferential low tax rate on dividend. U.K. and Australia use integrated tax method on dividend with comprehensive tax rate. These differences come from different concepts in tax law, and they cause many differences on corporations'financing policies and dividend policies. The common features of their dividend tax reform are simplifying tax system and enhancing efficiency.Chapter 4 Foreign capital gains tax system and its development. The capital gains tax is popular in the world. It pays attention to equity, and also considers reducing tax burden. There are some differences in capital gains tax systems in U.S., U.K. and Australia. U.S. uses common method to calculate the capital gains, and U.K. and Australia use index method and discount method to count the capital gains. They all give some allowances on capital gains, and apply preferential tax policies to support small business. These differences are born of their different society policies, law culture and economic surroundings.Chapter 5 The principles and targets of China's securities income tax reform. China's securities income tax is short of integrity, and the function of manipulating market is very weak. The rate of dividend tax is high. The income from investment in securities market is very low, and it is full of gamble atmosphere in the securities market. So, the reform of China's securities income tax should support securities market, and pay attention to efficiency and also consider equity, and encourage investment and restrain gamble. These are some targets such as reducing dividend tax rate, perfecting dividend tax methods, selecting correct capital gains tax system, balancing capital gains tax burden to realize tax efficiency and equity.Chapter 6 The perfect institutional design of China's securities income tax. China's dividend tax should design two tax rates: basic tax rates and additional tax rate. We should use modified classic method to deal with double taxation of dividend, and design anti-evasion rules. Capital gains tax should adopt semi-dependence model, and list the gains and costs on securities trade clearly, and use simple common method to calculate capital gains. There are two elements should be considered: the holding period and the market state. We should design different preferential tax rate to encourage long-term investment. We also perfect tax regulations on corporations'mergers and acquisitions, and give tax preferences on further investment. We should design fair tax relief to protect personal investors. We also make some assistant measures to complete the task of securities income tax reform.