Gov't Ponders on Ending Tax Breaks for Foreign Firms

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Last updated at: (Beijing Time) Wednesday, November 21, 2001

Gov't Ponders on Ending Tax Breaks for Foreign Firms

China is considering implementing a unified income tax policy to end tax favours that foreign-funded companies currently enjoy, an official with the Ministry of Finance said, as China has entered WTO and is trying to create an equal competition environment for foreign and domestic companies.

China is considering implementing a unified income tax policy to end tax favours that foreign-funded companies currently enjoy, an official with the Ministry of Finance said.

Tax favors made for foreign firms to attract investment during market opening up

The country is now practising dual-track enterprise income tax policies for domestic and foreign-funded companies.

The income tax rate for domestic companies is 33 per cent, while the figure stands at just 17 per cent for foreign-funded companies.

Tax incentives played an important role in attracting foreign investment before the Chinese market opened up more, said Zhang Baozhu, the ministry official.

Figures from the Ministry of Foreign Trade and Economic Co-operation indicate that China approved 382,930 foreign-funded enterprises by the end of September involving US$726 billion in contractual investment and US$380.8 billion in actual investment.

Last year, taxes paid by foreign companies rose 41 per cent to 232 billion yuan (US$28 billion), accounting for 18.3 per cent of China's total tax revenues.

A WTO member, China to create equal competition environment for foreign and domestic companies

However, the tax incentives resulted in more advantages than disadvantages is because the incentives co-existed with non-tax trade barriers such as higher tariffs and import quotas enjoyed by domestic companies, said Ni Hongri, a researcher with the Development Research Centre under the State Council.

Now that China has become a member of the World Trade Organization (WTO), the country will have to gradually remove trade barriers, she said.

Meanwhile, the country will open more sectors including banking, insurance, telecommunications, trade and tourism to foreign investors.

It will also provide an improved market system, which includes a more complete and transparent legal system, more open markets and more efficient administrative practices.

The more open market needs a fair tax environment for domestic and foreign-funded companies so that they can compete on an equal footing, Zhang said.

"The implementation of a unified tax policy has become a general trend," he said.

But he declined to say when the unified tax policy will be put into practice.

Ni said experts and government officials are still discussing details of the new system including the new tax rate.

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