The draft corporate income tax law, currently under review by
the National People's Congress, will not bring about a major
financial burden to overseas-funded firms, nor dampen their
investment enthusiasm, revealed Finance Minister Jin Renqing Friday.
The draft bill would introduce a flat 25 percent income tax rate
for both domestic and overseas-funded companies, moving from the
current system where domestic firms are plagued by a higher 33
percent rate.
However, the draft gives an incentive for high-tech companies,
lowering the rate to 15 percent, while also offering special
consideration to companies hailing from Taiwan, Hong Kong and
Macao.
"Given that close to 60 percent of companies funded from Taiwan,
Hong Kong and Macao are relatively small, the draft specifically
set a rate of 20 percent for this bracket of enterprises," said
Jin.
Furthermore, Jin revealed that for small companies, the increase
from 15 percent to 20 percent would be incremented evenly over five
years.
The tax hike for overseas firms would stand at 43 billion yuan
more a year after an increase to 25 percent, Jin estimated, but the
increments will reduce this burden initially to only 8 billion yuan
more a year.
Therefore, after taking in their significant profits, this would
not be of great long-term difference to their investment strategies
in China.
If passed, the law will come into effect on January 1 next year,
giving the overseas firms a transition period to adapt, noted
Jin.
Beyond changing the tax strategy, the draft bill also contains
incentives for firms with a proven environmental protection and
energy saving record with appropriate deductions being made from
their tax quota.
Addressing the heavily-scrutinized oil tax, the minister
announced related preparations but that its announcement would come
when conditions were ripe.
The oil tax would have to be in line with current energy
conservation and environment protection efforts, said Jin, adding
that it would be principally intended to help collect road use and
highway maintenance fees.
In closing, Jin reaffirmed that China will soon create an
investment corporation which will oversee the country's rising
foreign exchange reserves which now stand at over one trillion US
dollars.
China's cabinet, the State Council, will supervise the
corporation, removing its aegis from the Ministry of Finance's
remit. Although the State Administration of Foreign Exchange will
maintain its management of normal forex reserves, the rest will go
towards making more profitable investments.
Expert estimates have placed at US$700 billion the forex figure
that China needs to maintain to cover its foreign trade
requirements.
(Xinhua News Agency March 9, 2007)
