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.
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 nearly 3,000 lawmakers.
In an apparent refution to certain doubts about the move to equally protect state and private properties, Wang said under the conditions of the socialist market economy, the country's economic pattern 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," he said.
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.
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 believed that the draft reflects China's basic socialist economic system and will help coordinate the interests of different groups and improve social harmony once adopted.
Wang Jiafu, a senior civil law expert, said China's state and private properties once suffered serious violations due to the ignorance and neglecting of property rights.
"One of the greatest and most fundamental changes brought about by China's reform and opening-up is the gradual establishment of the socialist property system with Chinese characteristics," said Wang, a member of the Chinese Academy of Social Sciences.
"The equal protection of the state and private enterprises will greatly boost Chinese people's enthusiasm to create and protect wealth," he said.
To prevent fraudulent acquisitions and mergers of state property, the draft strengthens the protection of state-owned property, 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.
Also tabled for deliberation was the draft enterprise income tax law, which 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 rate for enterprises in China is currently set at 33 percent, but tax waivers and incentives are granted to the foreign-funded enterprises.
Official estimates show that the average enterprise income tax on foreign-funded enterprises is 15 percent while that on the domestic enterprises is 25 percent, 10 percentage points higher than the former.
Many Chinese economists, government officials and business leaders have openly criticized the dual income tax structure as being unfair to domestic businesses, which have to face tougher competition since China's accession to the World Trade Organization (WTO) in 2001.
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.
Transitional preferential measures will be 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 the 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.
Experts agreed that the tax change is actually a commitment to the World Trade Organization for equal treatment to enterprises, which can only strengthen China's responsible role and make it more attractive to foreign investment.
"Foreign companies have long enjoyed preferential tax treatment. We all knew this would not last forever," mayor of Rotterdam Ivo Opstelten told Xinhua in a written interview.
"With China's entry into the World Trade Organization, an equal marketplace should be developed," he said.
A research report from the World Bank analyzed that stable political situation, sound economic development, broad market, rich labor sources as well as increasingly upgraded business infrastructure and government service in China are the major factors attracting foreign investment.
Tax incentives are considered less important than transparent taxation and indiscriminate government policies, said the report.
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.
The two drafts are scheduled to be voted by the lawmakers on March 16, when the session ends.