China's proposed income tax reform will not add too much extra burden on enterprises with overseas investment, Chinese Deputy Finance Minister Xiao Jie said Sunday.
Addressing China Development Forum 2005, the deputy minister said the reform will not have a great impact on the flow of foreign investment into China either.
The actual income tax rate has remained at 14 percent for overseas-funded businesses, much lower than the 24 percent for domestic firms, since China formulated its preferential policy for overseas-funded enterprises in mid-1980s in a bid to lure foreign investment.
"The current corporate tax systems to be unified are not favorable for facilitating fair competition as their tax burdens are different," said the deputy minister.
China will put in place a unified corporate income tax on domestic and overseas-funded firms to replace the existing one, he said.
China will offer preferential tax treatment to selected sectors instead, and foreign investors will get more preferential tax treatment than domestic ones if they invest in certain sectors, said the deputy minister.
Xiao said there will be a transitional period for overseas investors to maintain their tax privileges for an unspecified period of time.
Experts and local companies have complained the policy does not comply with WTO principles and that, as a kind of discrimination against domestic firms, it also results in reduction of China's tax revenues.
Xie Xuren, director of the State General Administration of Taxation, said earlier this month that China will unify income tax for local companies and overseas-invested firms to accommodate China's entry into the World Trade Organization (WTO) in 2001 and boost fair competition among all businesses.
China's top legislature, the National People's Congress, has listed the Law on Enterprises' Income Tax in its lawmaking plan for 2005.
NPC deputy Cheng Faguang revealed earlier Wednesday that China might unify the income tax rates in 2008.
"This was in my most optimistic forecast," Cheng, also a member of the NPC Financial and Economic Committee, told Xinhua.
(Xinhua News Agency March 21, 2005)
