A deputy to the National People's Congress (NPC), China's top legislature, said Thursday the time is ripe for abolishing the policy of different income tax treatment for domestic and overseas-funded firms.
A unified tax treatment caters to "overseas experience and domestic situation", Cheng Faguang, also a member of the NPC Financial and Economic Committee, told Xinhua.
The actual income tax rate has been standing at 14 percent for overseas-funded businesses, much lower than the 24 percent for domestic firms, since China formulated the preferential policy for overseas-funded enterprises in mid-1980s in a bid to lure foreign investment.
Cheng said the policy does not comply with the World Trade Organization (WTO) principles as a kind of discrimination against domestic firms and reduces China's tax revenues. China joined the WTO in 2001.
It increases the management cost of taxation administrations and enterprises and incurs tax dodgery and speculative activities at overseas-funded firms, he noted.
Instead, a unified income tax rate for the two kinds of enterprises would help reduce capital inflow and foreign exchange supply so as to ease the pressure on Renminbi yuan appreciation.
Cheng played down the impact of unified tax policies on foreign investment inflow.
Foreign investors came to China to cash in on cheap labor force and land resources and preferential tax policies in the earlier years. However, as economic globalization and China's reform and opening-up drive deepened, the biggest attraction for them has shifted to investment climate and domestic demand, he said.
The outstanding amount of savings deposits at banks in China has surpassed 12 trillion yuan (US$1.45 trillion). Cheng pointed out there was no big gap between deposits and investment in China, so endeavors should be made to upgrade the quality of foreign funds.
China should encourage more foreign investment to flow into new and high-tech and highly value-added industries, as well as service industries and environmental protection sector to help upgrade its industrial structure, according to Cheng.
By the end of 2004, China has soaked in nearly US$600 billion of overseas investment -- a bellwether among developing countries.
(Xinhua News Agency March 4, 2005)
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