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| Tax revenue to shrink after firms face equal rate |
| 2007-03-09 01:10:27 |
CHINA is likely to face a tax revenue shrink of 93 billion yuan (US$12 billion) in 2008 once a new corporate income tax takes effect, said China's Minister of Finance.
Foreign and domestic companies in China will face the same 25 percent corporate income tax rate as legislators are creating a new law to combine the different rates on the two types of players.
Foreign companies are now facing an average 15 percent tax rate while Chinese companies are facing an average levy of 25 percent, Jin Renqing, the head of the Ministry of Finance, said.
Once the new law takes effect in 2008, tax income on domestic companies will drop 134 billion yuan when compared with the current tax levy, while foreign invested companies will pay 41 billion yuan more for tax, Jin said on introducing the draft on the new law in Beijing today.
The National People's Congress is expected to deliberate the draft today.
"The government can still afford the shrink on tax revenue triggered by the new corporate income tax law," Jin said. 'The new law will not cast a big shadow on China to lure foreign investment."
Its good timing to take the tax reform on corporate income tax as China's economy is booming and companies are enjoying rosy profits, he said.
"China's domestic companies are facing fierce international competition after the country joined the World Trade Organization," said Jin. "The current tax system with a higher tax levy on domestic players is granting them an unfair advantage."
The current tax system also pushed some domestic players to transfer capital to overseas and then invest in the domestic market to enjoy the lower rate on overseas capital, Jin said.
Elton Huang, a tax partner of PricewaterhouseCoopers, said foreign investors' concerned will be eased when they are informed of the preferential period and the fact that a generally higher tax rate will benefit them in the long run.
However, a five-year grace period will be granted to existing foreign companies.
China's current tax system, with the preferential income tax policy for foreign entities made in 1991, has helped make China the world's largest recipient of foreign direct investment.
At the end of 2006, 594,000 foreign companies have been approved to operate in China, attracting actual foreign investment of US$691.9 billion.
However, a new tax law catering to China's modern economy is called to replace those terms made more than a decade ago.
The new law will help improve China's investment structure. Authorities are beefing up efforts to make a green economy which boast more research and tech-intensive investment, with the new corporate tax law part of the chase.
The new law will also help propel domestic companies to invest overseas by easing their tax burden in the domestic market.
In the 159 counties that have corporate income tax laws, the average tax rate sits at 28.6 percent. While the average level of the 18 countries and regions surrounding China sits at 26.7 percent.
The new 25 percent rate can help attract overseas investment and enhance the competitiveness of domestic companies.
In 2006, foreign companies paid taxes worth 795 billion yuan, accounting for 21.12 percent of the country's total tax revenue.
More details are expected to be covered in an implementation regulation on the new law.
The draft was made by the Ministry of Finance, the State Administration of Taxation and the State Council.
Source: 08 March 2007, Shanghai Daily.
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