Financial Services Association, Feb. 23. The “Let me say a word to Chairman Wu Qing” campaign is in full swing, with small and medium-sized investors, financial institutions, and listed companies all offering their comments. Wu Shijun, director of Aier Ophthalmology, suggested that the personal income tax calculation method for equity incentives can be optimized and adjusted, and that it is no longer linked to the “stock market price on the day of stock registration”, so as to better increase the motivation of incentive recipients. The following is the full text of Wu Shijun's suggestions:

Since 2009, a large number of listed companies have implemented equity incentive plans, which have achieved certain results, but they have also revealed outstanding issues in the personal tax calculation of equity incentive recipients. I hope the Securities Regulatory Commission will coordinate and resolve them.

Section 3 of the “Notice of the State Administration of Taxation on Personal Income Tax Issues Relating to Equity Incentives” (National Tax Letter (2009) No. 461) stipulates, “The calculation formula for taxable income from restricted stocks subject to incentives is:

Taxable income = (stock market price on the day of stock registration+market price of stocks on the day the ban was lifted in this batch) ÷ 2 × number of shares unbanned in this batch - total amount of capital actually paid by the incentive target × (number of shares unbanned in this batch ÷ total number of restricted shares acquired by the incentive target)”

Theoretically, there is no causal relationship or intrinsic connection between the “stock market price on the day the stock registration date” and the income of the target recipient on the day the ban is lifted; in practice, this calculation method often produces negative inverse incentives. The reason is that A-shares have fluctuated greatly over a long period of time and the objective fact that a large number of listed companies have achieved the performance targets set in the incentive plan, but their stock prices have dropped significantly. This has led to the absurd phenomenon of incentive recipients still having to pay personal taxes in a state of loss, which seriously dampens the motivation of the incentives, is not conducive to the long-term development of listed companies, and is not in line with the basic spirit of national taxation and personal income tax.

In fact, the taxable income of the incentive target should only be related to the acquisition cost of restricted stocks and the stock market price on the day of release, so a reasonable tax calculation method is:

Taxable income = market price of stocks unbanned in this batch × number of shares unbanned in this batch — total amount of capital actually paid by the incentive target × (number of shares unbanned in this batch ÷ total number of restricted shares acquired by the incentive target).

Currently, there are many differences between stock prices and fundamentals of companies listed in the secondary market. I implore the Securities Regulatory Commission to coordinate with the State Administration of Taxation to revise the tax calculation formula for the equity incentive plan as soon as possible, so that the equity incentive plan can truly play an incentive role and accelerate the high-quality development of listed companies. (Wu Shijun, Director of Aier Ophthalmology)