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Authorities to well advance corporate income tax reform

(Xinhua)
Updated: 2007-01-24 14:48

The Chinese State Administration of Taxation (SAT) Wednesday said it would take effective steps to "secure a smooth corporate income tax reform".

China's top legislature is going to discuss and review in March the reform aiming to adopt uniform corporate income tax rates for both domestic and foreign companies.

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China currently adopts dual income-tax structures, under which domestic companies pay income tax at a nominal rate of 33 percent, while their foreign counterparts -- who benefit from tax waivers and incentives to encourage investment in China -- pay an average of 15 percent.

Although the actual income-tax gap of the two types of businesses is less wide -- domestic companies pay around 24 percent and overseas-funded businesses 14 percent, many people believe that it handicaps domestic players who have been facing tougher competition since China joined the World Trade Organization (WTO) in 2001.

"Dual income-tax structures were quite necessary in the past and played a crucial role in attracting foreign investment and facilitating China's economy," Deputy commissioner Wang Li of SAT told a press conference held by the Press Office of State Council.

Along with China's WTO entry, the advancement of economicglobalizationand the establishment and optimization of socialistmarket economymechanism, the dual income-tax structure also triggered new contradictions and problems, Wang said.

"The practice does not accord with the national treatment principle required by WTO rules, for instance, and is detrimental to the fair competition between companies of various forms," he said.

"It also triggered illegal tax evasion as some domestic companies had been found falsely passing off as foreign companies to claim low rates," Wang said.

Under the draft law to be reviewed by the Fifth session of the Tenth Standing Committee of the National People's Congress, China would introduce a unified tax rate of 25 percent for all types of enterprises. Tax privileges would be offered to encourage technical innovation.

The SAT is now making preparations for relevant judicial explanation. Once the draft law is approved, the administration would map out coordinated methods to secure a smooth reform.

China has been one of the world top destinations forforeign direct investment, hitting 63 billion U.S. dollars in terms of the amount actually used, up five percent over the previous year.

It reversed a downward trend in the first half of the year, but outcry from foreign firms over the phasing-out of their tax privileges in China remain strong.