|
China passes law hiking tax for foreign companies
2007-03-17
China's parliament on Friday passed a long-anticipated law that will unify tax rates for local and foreign companies, adding billions of dollars to the total tax bill paid by non-Chinese firms. A total of 2,826 lawmakers voted for the law, or 97.8 percent of those present in Beijing's Great Hall of the People on the final day of the annual full session of parliament. The Enterprise Income Tax Law will force most foreign-invested companies to eventually pay 25 percent of their income, compared with their current preferential tax rate of 15 percent. "It has become evident that preferential income tax rates for foreign-funded companies now amount to unnecessary discrimination against domestic enterprises," the official China Daily newspaper said in a recent editorial. The 25 percent tax rate will also apply to local companies, which have so far paid 33 percent income tax, although many have benefited from a broad array of special arrangements and exemptions. "To unify the corporate tax rate ... will make the country a level playing field for the enterprises," the China Daily editorial said. A unified tax rate has been expected ever since China entered the World Trade Organisation in late 2001 as the trade body does not permit this type of discrimination. Foreign-funded corporations paid various taxes worth 795 billion yuan (102 billion dollars) last year, of about 21 percent of total tax revenue in China, according to official figures. If the new tax law is implemented in 2008, the foreign-funded enterprises' income tax bill will increase by 41 billion yuan, according to estimates from the government. Collections from domestic firms will drop 134 billion yuan, resulting in a 93 billion yuan decline in fiscal revenue overall, the estimates show. "Unified tax rates, if indeed applied uniformly, are a step in the direction to apply national treatment and non-discrimination for foreign and domestic companies alike," said James Zimmerman, head of the American Chamber of Commerce in China. "At the same time, we believe that the expectations of some investors -- that came to the market based upon their understanding that they were to receive preferential tax treatment -- should be protected." Ian Kay, head of the European Union Chamber of Commerce in China, welcomed the new law but urged the government to give foreign companies equal treatment in all aspects of their business. "Preferential tax treatment of foreign companies has, in the past, been one of the factors contributing to China's extraordinary development," Kay said. "We believe that foreign and domestic companies should enjoy equal treatment in all areas, where this is feasible, for example obtaining licences and other requirements."
| 
