Differentiated rates of tax imposed on varying taxpayers are usually meant to achieve de facto fairness.
The preferential taxation policies the country began to offer to foreign investors more than two decades ago have really helped compensate the risks they were exposed to whilst establishing themselves in an unknown business environment when coming to China.
However, as market-oriented reform has immensely reshaped the Chinese economy in line with international standards, favorable taxes for foreign businesses become less justifiable nowadays.
More alarming, a newly-issued list of tax payments of top 100 foreign companies revealed a disappointing fact that preferential tax policies have clearly over-tilted the level playing field against domestic enterprises.
According to the list released by the State Administration of Taxation on Saturday, the top 100 foreign corporate taxpayers in China paid only 62.78 billion yuan (US$7.74 billion) in tax last year, registering virtually no growth over the previous year.
This appears extremely incongruous with the country's double-digit growth in overall tax revenues in 2004. The corporate income tax collected from domestic enterprises has jumped by one-third to 314.2 billion yuan (US$38.74 billion) from last year.
Have foreign businesses in the country fared worse in the past year?
The inflow of foreign investment worth US$60.6 billion last year indicated that the answer is "No."
Official statistics showed that foreign firms' profits soared by 25.5 per cent to 345.5 billion yuan (US$42.6 billion) last year.
A recent survey by two American chambers of commerce confirmed that a huge majority of US businesses operating in China reported increased annual revenues last year.
Another survey by the European Union Chamber of Commerce in China said that its member companies that have been in China for five-10 years and more than 10 years reported an average revenue growth of 42 percent and 35 percent respectively last year.
Growing confidence expressed by numerous foreign companies in China provides evidence of how lucrative the market is in their eyes.
So the zero-growth of foreign companies' tax payment clearly failed to reflect their sound performance.
And this is an unjust result of the fact that foreign companies enjoy a favorable corporate income tax rate of 15 per cent while domestic firms have to pay 33 per cent on income.
Early this year, the country's tax authorities were urged to consider a unified tax code to put domestic businesses on an equal footing in competition with multinationals.
Nevertheless, loud complaints by foreign companies about the scrap of tax favors granted to them have persuaded the policy-makers to adopt a more gradual procedure.
Yet, the new list of tax payments proved that this reform has become a matter of urgency.
Four years after its entry into the World Trade Organization, China has already opened wider to ensure special treatment for outside investors.
The zero-growth in tax payments of foreign companies justifies the need for prompt action from the tax authorities. Domestic enterprises do deserve a better tax environment at home. It is time to introduce a unified tax code for the fairness of business competition in this country.
(China Daily September 13, 2005)
