China draft law sets unified corporate tax rate at 25 pct - UPDATE |
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Thu, 08 Mar 2007 03:20
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BEIJING (XFN-ASIA) - China's draft corporate income tax law has set the unified rate for foreign and domestic firms at 25 pct, according to a copy of a speech that will be delivered by the finance minister, Jin Renqing, later today.Foreign-funded enterprises have received preferential tax policies since the late 1970's as China looked to attract overseas investment, but Jin said that conditions for reform of the tax law are now ripe.'If different tax policies continued to be implemented for domestic and foreign-funded enterprises, the former would definitely be put at a competitive disadvantage and the establishment of a unified market with standardized and fair competition would be obstructed,' the speech said.Foreign-funded companies currently pay an average of 15 pct in income tax in China, compared to the 33 pct paid by local companies.Jin noted that the new law is mainly intended to ease the tax burden on domestic enterprises, while also minimizing as much as possible the impact on foreign companies, with some continuing to benefit from preferential tax rates.'Since some foreign-funded enterprises may continue to enjoy preferential tax rates for hi-tech enterprises and small low-profit enterprises, and some others may enjoy transitional preferential tax policies, the current financial cost for foreign-funded companies will not be greatly affected,' Jin said.According to the speech, in 2006 the 594,000 approved foreign-funded enterprises nationwide paid 795 bln usd in taxes of all types, representing 21.12 pct of the total national tax revenue.Jin said that if the new tax law is implemented in 2008, foreign-funded enterprises' income tax will increase by 41 bln yuan, while for domestic enterprises collections will drop 134 bln yuan, resulting in a 93 bln yuan decline in fiscal revenue.'The decrease in fiscal revenues will be bigger, but such decrease is still acceptable to government finances,' Jin said.He added that preferential tax rates will continue to be applied to eligible enterprises, including those investing in environmental protection, water and energy conservation, high-tech and small low-profit enterprises, and agriculture and infrastructure construction.The draft law also aims to facilitate and standardize tax collection and payment, while broadening the tax base and simplifying the overall tax regime, Jin said, adding that Chinese lawmakers have drawn experience from international rules.'The level of enterprise income tax rates in the world, especially the neighbouring countries, has been taken into account,' Jin said.In the speech, Jin said the average enterprise income tax rate is 28.6 pct in 159 countries where such a tax is levied, while for China's neighbouring countries the average is 26.7 pct.'The rate of 25 pct set in the draft is relatively low in the world and will be conducive to enhancing enterprise competitiveness and attracting foreign investment,' Jin said.China's parliament is scheduled to vote on the draft corporate tax law next Friday.(1 usd = 7.74 yuan)will.davies@afxasia.com
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China draft law sets unified corporate tax rate at 25 pct 