Chinese lawmakers have agreed that the draft corporate income
tax law is now mature for vote, after making 15 minor revisions to
it during a five-day deliberation.
The presidium of the ongoing annual session of the National
People's Congress (NPC), China's top legislature, reached a
decision on Monday to submit the revised bill to final vote for
approval.
All NPC deputy groups deemed it necessary to unify the income
tax rate for domestic and foreign enterprises, since it will help
create a fair and standard environment for competition and improve
China's socialist market economy, said Yang Jingyu, chairman of the
NPC's Law Committee.
Some legislators suggested further revisions, some of which have
been adopted after careful studies, said Yang while briefing the
presidium meeting on the deliberation work by NPC deputies.
One revision is to raise the proportion of a company's charity
donation against its annual profits that can be exempted from tax
from the original 10 percent to 12 percent, according to the
meeting.
"It aims to encourage more companies to be engaged in donation
to public welfare," the meeting said.
Specific listing of infrastructure constructions, in which
investments can enjoy tax breaks, has been erased from the draft,
as some NPC deputies pointed out that public facility projects in
need of the state's major support shall be adjusted according to
the practical situation by the State Council.
The original draft had proposed that enterprises investing in
the construction of ports, wharves, airports, railways, highways,
power plants and hydropower projects shall get tax cut or
remission.
Some of the projects listed above, already with high returns,
shall be further studied to see whether they deserve a long-term
preferential tax policy, some lawmakers say.
The bill has also been revised to offer tax incentives to
investments in water-saving and energy-saving projects.
The draft enterprise income tax law, which suggests unified
income tax rate for domestic and foreign companies at 25 percent,
was submitted to nearly 3,000 legislators for examination last
Thursday at a plenary meeting of the parliament annual session.
During the deliberation, many NPC deputies voiced their earnest
expectation for a new enterprise income tax rate.
"If the draft is passed, we will finally be able to stand on a
level playing field with our foreign counterparts," said Chen
Guofeng, an NPC deputy and also board chairman of a textile company
in northeast China's Jilin Province.
China's current dual-income-tax mechanism has long been the
subject of intense debate. Many Chinese economists, government
officials and business leaders have openly criticized the tax
policies as being unfair to domestic businesses.
The actual average income tax burden on Chinese companies is
25percent, while that on foreign enterprises is 15 percent. The
draft sets a new tax rate of 25 percent for both.
Many people believe that the unequal rate handicaps domestic
players who have been facing tougher competition since China joined
the World Trade Organization (WTO) in 2001.
NPC deputy Huang Wei believed the increased income tax rate for
overseas enterprises will not weaken their enthusiasm over
investment in China, as they care more about the country's broad
market and sound economic prospect.
"It may exert small influence, but will facilitate the
improvement of the investment structure," Huang said.
Jin Renqing, Minister of Finance, had previously explained that
the implementation of the law would not affect certain
industry-specific preferential tax policies.
The draft has retained tax incentives for investment in projects
concerning environmental protection, agricultural development,
water conservation, production safety, high-tech development and
public welfare undertakings.
Lao Ngai Leong, an NPC deputy from Macao, noted that the
increase can be tolerated by foreign investors, who have gained
huge profits through investment in Chinese market and should make
more contributions to the country's development.
Shen Baochang, party chief of the Beijing's Daxing District and
also an NPC deputy, said that a five-year transitional period will
further offset the impact on foreign companies.
The income tax rate will be gradually increased to 25 percent
during this period, and old foreign enterprises can still enjoy tax
breaks within a regulated time limit as before, according to the
draft.
Generous tax incentives have fueled foreign capital influx.
China has been one of the world's top destinations for foreign
direct investment, taking in US$53.5 billion in 2003, US$60.6
billion in 2004, and US$60.3 billion in 2006 in terms of the amount
actually used.
Lu Jianzhong, an NPC deputy and vice director of the private
enterprise association of Shaanxi Province in northwestern China,
pointed out the 25-percent tax rate is still favorable compared
with those in some countries and regions.
The average enterprise income tax rate is 28.6 percent in 159
countries and regions around the world in which an enterprise
income tax is applied, while that in China's 18 neighboring
countries and regions it is 26.7 percent.
(Xinhua News Agency March 13, 2007)