The draft Corporate Income Tax Law is now under discussion
at the ongoing NPC session, and will be presented for voting on
March 16, 2007. A provision of particular interest stipulates the
unification or standardization of the rate of taxation at 25
percent, applicable to both domestic and foreign companies. In our
special series on the Corporate Income Tax Law, we'll be
interviewing NPC deputies, entrepreneurs, industry leaders, and
scholars for their take on the proposed unified tax rate, its
significance, and potential impact on China's industry and economy.
The following is our last piece of this serial interviews, where
Prof. Liu Jianwen of Peking University Law School, presents his
view. – Editor.
The draft Corporate Income Tax Law reflects a shift in the
Chinese Government's focus in relation to foreign investment and
industrial development, according to Liu Jianwen, a professor with
Peking University Law School, in an interview with china.org.cn
that was broadcast alive on the Internet on March 9.
The draft was submitted last Thursday at the ongoing Fifth Session of the Tenth National People's
Congress (NPC) for examination. Its main points include:
a unified tax rate of 25 percent for both domestic and
foreign-funded enterprises; a 20 percent preferential rate for some
small low-profit enterprises and 15 percent for some hi-tech
enterprises; a five-year transitional period to adopt the new tax
rates for certain foreign-funded enterprises; and a standardized
policy for actual expenditure deductions.
The new law will guarantee an equal treatment in tax rate, tax
deductions and preferences. Domestic and foreign-funded enterprises
are both important components of the national economy, so they
should have an equal base for competition, said Prof. Liu, adding
that such a law complies with World Trade Organization rules and
international trends.
Currently, foreign-funded enterprises are governed by the Income
Tax Law of the People's Republic of China for Foreign-funded
Enterprises, which was adopted at the Fourth Session of the Seventh
NPC in 1991, while domestic enterprises are governed by the
Provisional Regulations of the People's Republic of China on
Corporate Income Tax promulgated by the State Council in 1993.
Domestic companies are subject to an average 25 percent rate of
taxation, compared with the 15 percent applicable to foreign-funded
enterprises.
"The draft law reflects one major change in government policy
and that is the Chinese government will focus more on encouraging
energy-saving and environment protection, boosting industrial
upgrade and increasing Chinese enterprises' competitive strength in
the international market," Liu said.
"Although China will maintain its reform and opening-up policy,
the question now is what kind of enterprises China should encourage
and introduce."
He pointed out that preferential treatment for all foreign
investors does not necessarily benefit national development since
the country is in the midst of adjusting its economic
structure.
"In view of this adjustment, the Chinese government seeks to
develop industries such as hi-tech, infrastructure construction,
agriculture, forestry, animal husbandry and fishing through
revamped tax policies."
A major change that will be implemented is using industry-based
factors as a starting point for decision-making. Supporting factors
include regional requirements and the need for government
assistance. This is particularly important in the case of smaller
low-profit companies.
As enthusiastic as industry leaders have been about the proposed
law, Liu pointed out that it is lacking in detail, both in terms of
scope and implementation. He reckoned implementation measures would
be introduced in July or August this year.
"To ensure its smooth transition, similar provisions in
regulations issued by the State Administration of Tax (SAT) and the
Ministry of Finance need to be examined, while those that
contradict the new law should be eliminated," he said.
The draft law will be put to an open vote on March 16. If
approved, it is expected to take effect on January 1, 2008.
Our previous interviews:
More Details Requested of New Tax Law
HK Deputy: Corporate Tax Increases Welcomed
Sichuan Deputy: Tax Cut Good News for Chinese
Companies ?
Standardized Corporate Tax Rates for Level Playing
Field ?
Disabled Deputy: Raise Tax Relief for
Donations
(China.org.cn by staff reporter Wang Ke, March 13, 2007)