Foreign companies and individuals are responsible for a significant share of the tax burden in China, making up around one-fifth of the country's tax revenues. According to China's media last week, foreigners in the country paid 232 billion yuan in taxes last year, which is approximately 18.3 per cent of the total tax revenue collected.
Figures from the State Administration of Taxation (SAT) show that the taxes paid by foreign companies and individuals increased by over 40 per cent last year, compared with a 23 per cent rise in overall tax revenues. Last year tax revenues accounted for 90 per cent of the State's financial income.
The SAT report said the increase in tax payments by foreigners improved the Chinese economy and government spending on infrastructure has enhanced the taxable income of most foreign individuals and corporations.
The taxation system has became a vital instrument used by the Chinese government in its macroeconomic adjustment. In the past two years tax rebates for exports have been raised, personal income tax on residents' banking deposits has been implemented, and the fixed asset investment directory tax has been cut in half.
Local companies in China currently pay a tax rate of 33 per cent but foreign companies can enjoy reduced rates as low as 15 per cent; there are even incentives of tax 'holidays' that can last several years. However this may come to an end as Chinese officials have recently stated that the dual taxation system will have to become unified in order to gain entry into the World Trade Organisation. This means that Chinese and foreign companies will be expected to pay the same tax rate - but the rate itself has yet to be revealed.
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