Foreign and domestic companies in China are expected to face the same 25 percent corporate income tax rate from January 2008 as lawmakers are implementing a new law to combine the different rates on the two types of players, Finance Minister Jin Renqing said today.
Foreign companies are now facing an average 15 percent tax rate while Chinese companies are levied with a 33 percent tax rate as China used to offer foreign companies tax breaks to lure their investment.
However, overseas players can enjoy a five-year grace period on their current low tax rate before complying with the new rates, easing their concerns of disruption of operations.
Companies involved in sectors which gain authorities' support, such as environmentally friendly companies, will still enjoy tax cuts or tax returns.
China is pursuing a green economy to balance its growth without costing its environment.
Elton Huang, a tax partner of PricewaterhouseCoopers, said foreign investors' concerns should be eased with the preferential period and the fact that a generally higher tax rate will benefit them in the long run.
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 offoreign direct investment, billions of dollars of which has been poured into building up manufacturing sites in China.
However, a new tax law catering to China's modern economy is called for to replace those terms made more than a decade ago.
Besides, China pledged to equalize tax treatment for foreign and domestic companies when it joined the World Trade Organization in 2001, which made such a move inevitable.
The law, which will help improve China's investment structure, will also help propel domestic companies to invest overseas by easing their tax burden in the domestic market, Huang noted.
The Chinese mainland's 33 percent tax levy makes domestic firms less competitive in terms of tax payment. For instance, the corporate tax inHong Kongis about 15 percent.