Foreign-funded companies will continue to enjoy certain tax incentives, the director of the State Administration of Taxation said on Thursday.
Jin Renqing said China has not yet set a timetable for implementing a unified corporate income-tax policy to end all the tax breaks.
He said: "Some tax incentives will be allowed to stay for foreign-funded companies already operating in China." This is permitted under the rules of the World Trade Organization, he added.
"We will honor the promises of those incentive systems granted to old well-established foreign-funded companies," Jin said at a Beijing press conference hosted by the Information Office of the State Council.
But the general trend is to have the same tax treatment for domestic and foreign-funded companies because they should compete on an equal footing, Jin said. "But there is no timetable," he added.
The country now practices dual-track corporate income-tax policies for domestic and foreign-funded companies.
The income-tax rate for domestic companies is 33 percent, while that for foreign-funded companies stands at 17 percent.
Tax expert Ni Hongri of the State Council's Development Research Center said tax incentives had played an important role in attracting foreign investment when the Chinese market was not open enough.
Figures from the Ministry of Foreign Trade and Economic Cooperation indicate that China approved 382,930 foreign-funded enterprises by the end of September 2001, involving US$726 billion in contractual investment and US$380.8 billion in actual investment.
Last year, taxes paid by foreign companies rose by 57 percent to 51.1 billion yuan (US$6.2 billion), accounting for 3 percent of China's total tax revenue.
Ni said the preferential policies also led to a serious loss in tax income.
But the tax incentives brought more advantages than disadvantages, because the incentives co-existed with non-tax trade barriers such as higher tariffs and import quotas enjoyed by domestic companies, she said.
Zhang Peisen, a senior researcher with the Taxation Research Institute, said that the more open market needs a fair tax environment for domestic and foreign-funded companies so that they can compete on an equal footing.
Jin said China's total tax revenue in 2001 reached 1,517.2 billion yuan (US$182.8 billion), fulfilling the year's target by 113.1 percent.
The figure represents an increase of 19.8 percent, or 251.1 billion yuan (US$30 billion), over the previous year, he said.
According to Jin, economic growth and improved efficiency helped the tax revenue increase by more than 120 billion yuan (US$14 billion), while tax policies and non-recurrent factors contributed an increase of about 90 billion yuan (US$11 billion).
In a breakdown, Jin said the total tax revenue for 2001 included 545.2 billion yuan (US$66 billion) of domestic value-added tax, up 16.8 percent year on year; 212.3 billion yuan (US$26 billion) of income tax from domestic enterprises, up 47 percent; 51.1 billion yuan (US$6.2 billion) of income tax from foreign-funded enterprises, up 57 percent; and 96.6 billion yuan (US$12 billion) of personal income tax, up 51 percent.
(China Daily January 11, 2002)
