The Chinese State Administration of Taxation (SAT)
announced Wednesday it would take effective steps to "secure a
smooth corporate income tax reform."
China's top legislature will
consider and review in March the reform aiming to adopt uniform
corporate income tax rates covering both domestic and foreign
China currently uses dual
income-tax structures, under which domestic companies pay income
tax at a nominal rate of 33 percent, whist their foreign
counterparts – through preferential policies such as tax waivers --
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, there remains a strong
belief that it handicaps domestic players who are facing tougher
competition with China’s accession to 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
Along with China's WTO entry, the advancement of
economic globalization and the establishment and optimization of
socialist market economy mechanism, the dual income-tax structure
also triggered new contradictions and problems, Wang
"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. Technical innovation would be
recompensed with tax privileges.
The SAT is further preparing for relevant judicial
explanation. Once the draft law is approved, the administration
will map out coordinated methods to secure a smooth
China has been one of the
world's top destinations for foreign direct investment, hitting
US$63 billion, up five percent year-on-year.
It reversed a downward trend from the first half of
2006, but foreign firms' complaints at the dissolution of their tax
privileges remain strong.
(Xinhua News Agency January 24, 2007)