China makes first move to flat tax rate of 25%
By : Allister Heath
03/01/2007
thebusinessonline.com
China has moved a step closer to adopting a radical flat tax after the Standing Committee of the Tenth National People’s Congress began discussing whether to adopt a single rate for corporation tax over Christmas.
In the first instance, the flat tax would apply to company tax and would probably be charged at 25%, lower than in Britain, harmonising the current range of rates and the distinction made between Chinese and foreign companies. If deemed successful, the experiment is likely to be extended to other taxes, including income tax.
The Chinese authorities have been watching closely as growing numbers of Eastern European economies, including Russia, have adopted versions of the flat tax, a system whereby income tax, corporation tax and sometimes even value added tax are all charged a one single, low rate, with no exceptions or exemptions.
A radical move by the Chinese would cause problems for high-tax jurisdictions such as Britain and the euro zone, which might find it hard to retain skilled labour and capital. The Chinese ministry of finance has already gone as far as to invite foreign flat tax specialists to brief officials on how such a system could work for China; the main flat tax textbooks have been translated into Mandarin.
In a report on reforming corporate income tax law, Jin Renqing, China’s Finance Minister, said local businesses are facing tough competition as they’re enveloped by the world economic system. |
