China's legislature on Friday authorized the State Council to suspend or cut the 20-percent tax on interest earned on personal savings according to economic and social situations.

The decision was made at the 28th session of the Standing Committee of the National People's Congress.

Experts say the move is aimed at making bank savings more attractive and reducing the amount of money flowing into the stock market.

Chinese shares took another tumble on Friday as investors panicked at the government measures to rein in excess liquidity and cool down the stock markets.

The benchmark Shanghai Composite Index closed 2.39 percent lower Friday, making the key index lose 6.62 percent for the week, the biggest weekly fall in months.

In recent months, China has seen large sums of money flow from deposit accounts into stock trading accounts.

China's household deposits posted the largest monthly drop in May, decreasing by 278.4 billion yuan, according to central bank statistics.

China began to tax interest earned on savings accounts in November 1999.

"Taxing the interest on savings accounts has encouraged consumption and investment and helped regulate personal incomes," said Jin Renqing, Minister of Finance, on Wednesday to legislators.

The benchmark one-year deposits carry an interest rate of 3.06 percent. However, given the 20 percent interest tax, the actual yield is just 2.45 percent.

"China's savings interest remains at a low level," said An Tifu, an economics professor with the Renmin University. "If interest tax continues to be levied, citizens' savings deposit will further decrease in value as consumer price keeps rising."

The move to cut interest tax will benefit low and middle-income citizens most, said economist Wang Xiaoguang.

Source: Xinhua