On Wednesday the Chinese State Administration of Taxation (SAT)
said it would take effective steps to "secure a smooth corporate
income tax reform."
China's top legislature is going to discuss and review in March
the reforms aiming to adopt uniform corporate income tax rates for
both domestic and foreign companies.
Currently there are dual income-tax structures under which
domestic companies pay income tax at a nominal rate of 33 percent
while their foreign counterparts -- who benefit from tax waivers
and incentives to encourage investment in China -- pay an average
of 15 percent.
Although the actual income-tax gap between businesses is less
wide -- domestic companies pay around 24 percent and
overseas-funded businesses 14 percent -- many believe that it
handicaps domestic players who've been facing tougher competition
since China joined the World Trade Organization (WTO) in 2001.
"Dual income-tax structures were quite necessary in the past and
played a crucial role in attracting foreign investment and
facilitating China's economy," Deputy Commissioner Wang Li of SAT
told a press conference convened by the State Council Press Office.
.
Along with China's WTO entry, the advancement of economic
globalization, the establishment and optimization of the socialist
market economy mechanism, the dual income-tax structure triggered
new contradictions and problems, Wang said.
"The practice doesn't accord with the national treatment
principle required by WTO rules, for instance, and is detrimental
to the fair competition between companies of various forms," he
said.
"It also triggered illegal tax evasion as some domestic
companies had been found falsely passing themselves off as foreign
companies to claim low rates," Wang said.
Under the draft law to be reviewed by the Fifth session of the
Tenth Standing Committee of the National People's Congress, a
unified tax rate of 25 percent for all types of enterprises would
be introduced. Tax privileges would be offered to encourage
technical innovation.
The SAT is now making preparations for relevant judicial
explanation. Once the draft law is approved the administration
would map out coordinated methods to secure a smooth reform.
China has been one of the world's top destinations for foreign
direct investment, hitting US$63 billion in terms of the amount
actually placed. This is up 5 percent on the previous year.
It reversed a downward trend in the first half of the year, but
the outcry from foreign firms over the phasing-out of their tax
privileges remain strong.
(Xinhua News Agency January 24, 2007)