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 companies.

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 Council.

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 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. 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 reform.

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)