[Excellent news!]--China to unify corporate income tax
www.chinaview.cn 2005-01-20 09:38:59
BEIJING, Jan. 20 (Xinhuanet) -- A Chinese finance official has said "the conditions are ripe" to unify the corporate income tax for domestic and foreign-funded enterprises.
Though he said that he expects the process to be complete in one or two years, there may be a transitional period lasting 10 years, said Lou Jiwei, vice minister of Finance, at a recent briefing on China's economic situation.
He said the coming step would be to remove or simplify various corporate income tax incentives, which would also help expand the tax bases. Then corporate income tax incentives would be granted by industrial sector and geological location.
"For example, a 15 percent rate will be applied on all new and hi-tech businesses no matter it is inside or outside a new and hi-tech industrial development zone. A 15 percent rate will applied in China's western regions no matter the business is a domestic company or a foreign-funded company," said Lou.
He said the existing tax rates would be simplified and a moderate or slightly lower tax level be put into place.
According to Lou, wages, advertising expenditure and donations amounting to less than 10 percent of the payable corporate income tax of businesses would be treated as cost and no longer subject to corporate income tax.
The average tax burden of foreign-funded enterprises is 11 percent at present, but 22 percent for domestic enterprises. It's 30 percent for China's large and medium-size state-owned enterprises. In addition, foreign-funded enterprises are allowed to list all wages as cost, while domestic companies are not.
"Unifying the corporate income tax is an inevitable matter. Theexisting system has caused grave inequality between foreign-fundedand Chinese companies. That's against the principle of fair competition," said Lou.
According to Lou, China has possessed the ripe conditions to push forward the unification. First, China is obligated to grant equal treatment to both domestic and foreign companies after it joined the WTO; second, China's tax revenue has experienced sustained growth and capable to sustain the reform; third, the reform will result in less tax revenue for regional governments and forcing them to shift their work style and reduce interventionin economic affairs; fourth, with the improvement in the governance ability of Chinese enterprises, time has come to adjusttaxes that aim to help regulate the spending pattern of state-owned enterprises.
Lou said the ministry firmly opposed the view that China's corporate income tax rates should not change.
"This viewpoint is wrong. A sovereign country is entitled to change its taxation system through legal procedure," said Lou. "Moreover, no country is obligated to guarantee foreign investors keep a 15 percent or higher return on investment. It's natural forinvestors to face risks."
According to Lou, the return on investment of multinational companies is only 10 percent.
"What foreign investors truly value in China is the market and low cost, rather then tax incentives," said Lou. Enditem
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