China Defers Unification Of Corporate Tax Rates

by Mike Godfrey, Tax-News.com, Washington

11 March 2005

After a long-running battle between different factions in the Chinese government, and strenuous lobbying by Western companies, Xie Xuren, director of the State Administration of Taxation, told journalists yesterday that China would delay for further study its plan to unify taxation of foreign and domestic companies.

Jin Renqing, the minister of finance, had been hawkish on the issue, saying that the differential rates (11% to 14% for foreign companies versus 24% for local companies) amounted to unfair competition. He proposed levelling up the rate to 24% for all companies, asking: "The Chinese market is the best in the world, so how could foreign investments ever disappear?"

In January, 54 major international companies joined forces to lobby the Chinese government, accepting the need for unification, but asking for a transition period of five to ten years. Eventually, China has no choice in the matter under WTO rules, but in practice there is little to stand in the way of an extended transition period.

The government's plan for unification had been widely expected to be approved at the annual meeting of the national legislature currently under way, and implemented next year. Making the deferral announcement yesterday, Mr Xie said China still intends to merge the rates, and that the government had studied the issue thoroughly. "This year, we're going to make more efforts to deepen that study," he said.

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