Beijing Set To Review Corporate Tax Law

by Mary Swire, Tax-News.com, Hong Kong

06 June 2006

It has been reported in the Chinese media that lawmakers in Beijing will review a draft law equalising the rate of corporate tax paid by domestic and foreign firms later in the summer.

Citing Wang Jianfan, vice director of the Ministry of Finance's tax policy department, the Shanghai Securities Journal reported that the draft proposals will be submitted to the Standing Committee of the National People's Congress for deliberation in August.

Wang added that the law is expected to come into force in January 2008. The official was also quoted as saying that the new legislation will provide tax breaks for firms in certain industries.

The introduction of a unified corporate tax rate has been discussed in China for some years, but it has only been in recent months that the government has began setting the wheels in motion towards a change in the law.

Local firms have been pressing for a change, arguing that foreign-backed entities unfairly enjoy more favourable tax treatment. Currently, the official rate of corporate tax in China is 33%. However, in an attempt to attract higher levels of foreign investment as the authorities sought to develop a market-based economy, various deductions and waivers have allowed foreign-funded firms to pay tax at an effective rate of 14%, whilst domestic firms effectively pay corporate tax at about 24%.

It is thought that the new unified corporate tax rate will be set at or near 25%.

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