The Ministry of Finance announced Friday that it would take a differentiated policy regarding individual income tax on dividends and bonuses for stockholders, based on the period when they held the stock, starting from January 1, 2013, in a move to curb short-term speculation and stabilize the sluggish stock market.

Investors in companies listed on the Chinese mainland will pay 5 percent of their dividends and bonuses earned from stock as income tax if they have held the stocks for more than one year; they need to pay 10 percent if they have held the stock for between one month and one year, and if they have held the stock for a month or less, the tax will be 20 percent, according to the announcement.

The current tax is 10 percent for all dividends and bonuses.

It is good news for the stock market as it reduces the tax burden for stock investors and encourages long-term investment in blue chips (quality stocks), so as to attract long-term capital investment and stabilize the stock market, Li Daxiao, director of the research institute at Yingda Securities, told the Global Times Friday.

A move that halved the dividend tax to 10 percent in June 2005 helped the stock market rebound from a five-year downturn.

However, Lin Yixiang, chairman of Beijing-based TX Investment Consulting Co, told the Global Times Friday that the differentiated policy would have a limited effect and it would be better to remove the tax entirely.

"Most funds and retail investors tend to hold stocks for shorter than one year, and the new policy will increase rather than reduce their tax burden," Lin said.

Guo Shuqing has spearheaded reform measures such as stock transaction fee cuts since he took up the post of chairman of the China Securities Regulatory Commission in October 2011, but his measures have been unable to change the direction of the poorly performing stock market. 

The Shanghai benchmark index hit its three-and-half-year lowest point at 1,999.48 on September 26 from a historical high of 6,124 five years ago; and it closed down 0.77 percent at 2,014.72 Friday.

Li also noted that there is a lot of room for stock-related tax cuts, and more reforms are needed to realize the sound development of the stock market, such as more attention on the investors rather than fundraisers and more emphasis on introducing capital into the market.

China will raise quotas for the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme to allow more investment of offshore yuan funds into the stock market, Guo said on November 11.