BIZCHINA> Taxation
Unifed tax rate to apply to domestic, foreign-funded enterprises
Updated: 2007-03-02 17:49

BEIJING- When the National People's Congress kicks off its annual series of meetings on Monday, one law expected to be passed will unify corporate income tax rates at 25 percent, ending special privileges for foreigners.

Unifed tax rate to apply to domestic, foreign-funded enterprises
Two foreigners use aBank of Chinaautomated teller machine (ATM) in Beijing in this file photo.[AFP]
Unifed tax rate to apply to domestic, foreign-funded enterprises
"The current tax regimes are too complicated," Finance Minister Jin Renqing said recently.

"A unified tax code will create a taxation environment that favours fair competition among all ventures registered in China."

Or that is the theory at least. Foreigners are cautiously waiting to see what the reality will be.

"The question is whether there will be all sorts of dispensations and cozy arrangements for Chinese enterprises," said a Western executive who asked not to be identified.

The new 25 percent tax rate means foreign enterprises which so far have been subject to a 15 percent income tax will have to pay a combined 5.1 billion dollars extra every year, according to official calculations.

Chinese companies, meanwhile, will pay 16.8 billion dollars less, since up until now they have been taxed at 33 percent.

No wonder, then, that Chinese executives such as Lu Honghua, general manager of Changchun Huaxin Food, a candy maker in northeast China, sees the measure as justice finally reigning supreme.

"For us domestic enterprises, the unification of the rates signals that all the enterprises have returned to the same starting point and that all market players are put on an equal footing," Lu told state media.

One oft-cited reason for the unified tax rate is China's entry five years ago into theWorld Trade Organisation, which says foreigners and locals must be treated equally.

Just as important, however, are changes in the requirements of the Chinese economy now compared with when the dual tax regime was devised.

"When the differential tax treatment was introduced, it reflected a need for a policy of reform and of opening," said Wang Li, a senior finance ministry official.

"We needed to attract the foreign capital, to accelerate the development of the economy."

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