2007 NPC

Lawmakers deliberate bills on property, corporate tax

Updated: 2007-03-08 09:28

Lawmakers listen to an explanation about the draft Property Rights Law that grants equal protection to state and private properties in the Great Hall of the People March 8, 2007. [Xinhua]

China's top legislature, the National People's Congress (NPC), on Thursday started examining two draft laws aimed to grant equal protection to state and private properties and introduce a unified income tax for domestic and foreign-funded enterprises.

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The draft property law and the draft enterprise income tax law were submitted for deliberation to the ongoing annual full session of the Tenth NPC, as the lawmakers started their second plenary meeting at the Great Hall of the People in Beijing at 9 a.m. Thursday.

"Enacting the property law is necessitated by the need to uphold the basic socialist economic system...by the need to regulate the order of the socialist market economy...(and) by the need to safeguard the immediate interests of the people," said Wang Zhaoguo, vice chairman of the NPC Standing Committee, while reading an explanation on the law to the lawmakers (click for full text of the explanation ).

The law is enacted to apply "the principle of equal protection to the property of the state, the collective and the individual in accordance with the provisions of the Constitution" and " strengthen the protection of state-owned property", Wang said.

He said under the conditions of the socialist market economy, the country's development choice stipulated in the Constitution, all players have equal status on the market, enjoy the same rights, observe the same rules and bear the same responsibilities.

"If the different subjects of the market are not provided with equal protection, or if the methods used for settling disputes or the legal responsibilities to be borne are varied, it will not be possible to develop the socialist market economy, nor will it be possible to uphold and improve the basic economic system of socialism," Wang said.

To prevent loss of state property, the draft strengthens the protection of state-owned property from five aspects, stipulating that illegal possession, looting, illegal sharing, withholding or destruction of state property is prohibited.

Those who cause loss of state property shall bear legal liability, according to a full text of the draft distributed to reporters at the session.

Wang said the law was also drafted with the principle of " giving a full and accurate expression to the basic policies of the Party in rural areas at the present stage".

In order to grant the farmers a long-term and guaranteed land- use right, the draft property law stipulates that when farmers' land contracts expire, the contractor can have the contract renewed.

As part of the draft civil code, the property law was submitted to the NPC Standing Committee for the first review in 2002 after nearly 10 years of preparation.

To fully consider the interests of all social sectors, the law' s drafters published the law to the public in July 2005 and pooled more than 10,000 suggestions.

After an unprecedented seven times of reading, NPC Standing Committee decided last December to put it for voting at the Fifth Session of the Tenth NPC, believing that the draft "represented a crystallization of the wisdom of the collective and was about to be mature".

China's legal experts said that the draft reflects China's basic socialist economic system and will help improve China's socialist market economy and speed up the building of the harmonious socialist society once adopted.

The draft enterprise income tax law [click for full text of the explanation] suggests a unified income tax rate for domestic and foreign-funded companies at 25 percent.

Delivering an explanation to the lawmakers, Finance Minister Jin Renqing said the law was drafted to "establish a scientific and standardized enterprises income tax system uniformly applicable to various type of enterprises and create an environment for fair competition".

The income tax is currently levied on domestic and foreign- funded enterprises at the same rate of 33 percent. However, foreign-funded enterprises in some special regions are levied at a preferential rate of 24 or 15 percent, and domestic low-profit enterprises are levied at two brackets of special rates of 27 percent and 18 percent respectively.

"Too many brackets of tax rates contribute to a relatively large disparity between nominal income tax rate and effective income tax burden of various types of enterprises. Therefore, it is necessary to unify the income tax rate," Jin said.

An estimate based on a national survey of enterprise income taxes shows that the average enterprise income tax burden on foreign-funded enterprises is 15 percent while that on the domestic enterprises is 25 percent, 10 percentage points higher than the former.

Jin said the proposed 25 percent of tax rate is mainly intended to ease the tax burden on domestic enterprises and keep a rise as little as possible for the foreign-funded enterprises.

Statistics showed that the average enterprise income tax rate is 28.6 percent in 159 countries and regions and the average rate in China's 18 neighboring countries and regions is 26.7 percent.

"The rate of 25 percent set in the draft is relatively low in the world and will be conducive to enhancing enterprises' competitiveness and attracting foreign investment," Jin told lawmakers.

Transitional preferential measures were given to allow the old enterprises, which had an income tax rate of 15 percent or 24 percent under the current tax laws, to enjoy a gradually increasing income tax rate within five years after the new tax law takes effect, according to the draft law.

If the new tax law is implemented in 2008, China's domestic enterprise income tax will drop by 134 billion yuan while foreign- funded enterprise income tax will increase by 41 billion yuan. China's total fiscal revenues will drop by 93 billion yuan.

Given transitional measures to be applied to old enterprises, the decrease in fiscal revenues will be bigger. "But such decrease is still acceptable to Government finance," Jin said.

China adopted preferential tax policies at the end of 1970s when it started the economic reform and opening-up drive to attract foreign investment and boost its economy.

By 2006, China has approved 594,000 foreign-funded enterprises, with 691.9 billion U.S. dollars of foreign fund used.

In 2006, all the foreign-funded enterprises paid 795 billion U. S. dollars in all types of taxes, accounting for 21.12 percent of the total national tax revenue.

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