Foreign investors will pay the same rate of corporate income tax
as their Chinese competitors from 2007, according to a senior
expert.
Jia Kang, president of the Institute of Fiscal Science under the
Ministry of Finance, revealed that China's highest decision-making
body had reached a decision on the long-awaited timetable for
levying a unified corporate tax on domestic and overseas-funded
firms.
"The decision-making body has reached a common ground to speed
up taxation reform. And the timetable is reliable," Jia told
China Daily during a forum over the weekend on China's
investment climate held in Jiangmen, Guangdong
Province.
To lure foreign investment, the Chinese government has been
offering overseas investors preferential tax rates since the mid
1980s.
The average corporate tax rate for domestic companies is 33
percent while foreign firms pay only half that. Statistics show
that foreign enterprises get an annual tax break of approximately
US$50 billion in China.
Jia did not reveal what the unified rate might be but earlier
forecasts have suggested 24 or 25 percent.
Jia said China has to unify the tax code to cater to the new
business environment brought about by China's entry to the World
Trade Organization in 2001 as well as encourage fair competition
among all businesses.
"Our goal is to treat every investor equally, whether local or
foreign, private or State-owned," said Jia.
Following the unification of the nation's tax policies, Jia said
foreign-funded firms would be given a five-year transition period,
which means investors entering the country before 2007 can take
advantage of the current tax break until the end of 2011, but firms
coming into the country after 2011 will be levied with the new tax
as soon as they start doing business.
Jia dismissed concerns rife in business circles that foreign
direct investment would slump if the preferential tax policy were
scrapped.
"I don't think so because the income tax rates for some sectors
are still attractive and low," said Jia.
Partly due to the tax breaks, China had attracted a total of
US$562.1 billion in foreign direct investment by the end of 2004
and approved the establishment in the country of more than 500,000
foreign-funded enterprises.
US-based urban planning company JAO Design International is
among them. Its CEO James Jao said reform of the current system
would create a competitive environment for both domestic and
foreign investors.
But, he said he hoped the government continues to offer tax
advantages to some industries after the single tax policy takes
effect.
And the government's efficiency and transparency will have a
major impact on the country's use of foreign investment, said
Jao.
(China Daily May 30, 2005)