Experts urge business income tax unification

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Last updated at: (Beijing Time) Thursday, January 08, 2004

Experts urge business income tax unification

The time is ripe for the government to introduce a unified income tax policy for domestic and foreign-funded companies, experts said.

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The time is ripe for the government to introduce a unified income tax policy for domestic and foreign-funded companies, experts said.

"An equal tax treatment for all companies is in line with international practice, now that China has become a member of the World Trade Organization (WTO)," said Ni Hongri, a senior researcher with the State Council's Development Research Centre.

China is now practicing a twin-track income tax policy for domestic and foreign-funded companies.

The income tax rate for domestic companies is 33 per cent, while it is just 17 per cent for foreign-funded firms.

Domestic companies have been bearing too heavy tax burdens, Ni said.

"This situation is unfavourable for domestic companies to participate in international competition," she said.

The implementation of a unified income tax policy has become a must, she said.

Ni added that the exact rate remains unknown.

Finance Minister Jin Renqing said the new rate should be acceptable to both domestic and foreign-funded companies.

Media reports suggest the new rate will be 24 or 25 per cent.

A unified tax policy is a good news for domestic companies, said Niu Li, a senior economist with the State Information Centre.

"Less taxes mean more profits," he said.

Zhang Peisen, a senior expert with the Taxation Research Institute under the State Administration of Taxation, said it is urgent to unify business income tax policies.

"Under the existing income tax policy, foreign companies are actually enjoying super-national treatment," Zhang said.

The favourable tax policy was vital in attracting foreign investment to China in the early stages of the nation's opening and reform process.

At that time, the tax incentives resulted in more advantages than disadvantages, because the incentives co-existed with such non-tax trade barriers such as higher tariffs and import quotas enjoyed by domestic companies, he said.

Now that China has become a WTO member, the country will have to gradually remove these trade barriers, he said.

The country will also open up more sectors to foreign investors.

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

Professor An Tifu from Beijing's Renmin University said the government should have introduced a unified income tax policy before the country joined the WTO in 2001.

The government has been considering the issue for a long time, he said, adding that it is likely to introduce the new policy sometime next year.

But other experts, including Ni, said the new policy will not be implemented very soon because legislators have yet to look at the issue.

Finance Minister Jin says the government is still studying the issue.

"It is extremely important, therefore we have to be very prudent and give careful consideration to the issue."

The government has not set a timetable for implementation of the new tax policy, he said.

"We have to choose the right time to introduce the unified income tax policy," he said.

Unification of income tax policies is in line with the nation's WTO commitments and will be beneficial to China's further opening-up move, attracting of foreign investment and increasing domestic companies' competitiveness, he said.

Ni said unifying the tax policy will not hurt China's efforts to attract foreign investment.

"What foreign companies cherish most in China was a stable economic and social environment, not just tax favours,'' she said.

China's economic miracle in recent years has made the country very attractive to foreign companies, she said.

A unified tax policy does not necessarily mean the government will no longer offer tax favours to foreign-funded companies, she said.

The government may offer such favours for certain foreign-funded companies at certain times in accordance with the requirements of the country's macro-economic development, Ni said.

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