Finance Minister: Tax change won't hurt foreign firms

By Xu Binglan (China Daily)
Updated: 2007-03-10 13:00

Unification of corporate income tax will not have a big impact on foreign companies because the extra tax burden caused by the change will be easily offset by the profits they earn in China, Finance Minister Jin Renqing said on Friday.

Under the draft Corporate Income Tax Law, which is expected to be passed at the ongoing National People's Congress next week, domestic and foreign companies will be taxed at a unified rate of 25 percent.

The current rate for Chinese companies is 33 percent, while the rate for overseas players is between 15 and 24 percent.

However, Jin, speaking at a press conference, said the number of enterprises that will see their corporate income tax rate rise from 15 percent to 25 percent will be very limited because sectors such as the high-tech industry and small, low-profit companies will still enjoy preferential rates.

The rate for high-tech companies will remain at 15 percent and that for small, low-profit firms will be 20 percent.

Jin said the law, if passed, will come into effect on January 1, 2008.

He said because foreign companies will be given a five-year phase-in period, their burden will increase gradually.

After the five-year period, foreign companies are expected to pay 43 billion yuan ($5.5 billion) more in corporate income tax than they do now, he said.

Funding education

Jin said the country will substantially increase public spending on education to make it affordable to poor students.

"The government is most willing to foot the bill for education," he said.

China will spend 220 billion yuan ($28 billion) to ensure children in rural areas can receive nine years of free education. Government funds for the same purpose will rise to 300 billion yuan ($39 billion) in 2010.

He said the government will also significantly expand financial aid programs for vocational training and college students.

The government will also resume its policy of full tuition scholarship and stipends for key teacher-training universities from this year. The policy was suspended at many universities in recent years.

Financial issues in the education sector have emerged as a major social problem for the country in recent years.

Families feel a mounting burden to support students while some cash-strapped universities borrowed heavily from banks.

Fuel tax

Jin also offered his thoughts on the long-anticipated fuel tax, which was first proposed about a decade ago.

He said the first major policy goal of the fuel tax should be to replace the road-use fee.

He admitted a fuel tax could also encourage energy conservation and help environmental protection, but it could also increase the financial burden on citizens.

"China's fuel tax should primarily solve the problem of the road-use fee. The design should ensure the tax should not increase the burden on society," he said.

He said he hoped the tax would be introduced soon, but the timing will depend on whether conditions are right.

(China Daily 03/10/2007 page3)

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