China Must Unify Corporate Tax For Foreign And Domestic Firms, Experts Urge

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

02 December 2003

A Chinese academic has urged the central government to make unification of the corporate tax rate for domestic and foreign firms its number one priority when undertaking key taxation reforms next year.

"Domestic companies have borne tax burdens that are too heavy," explained Zhang Peisen, a senior researcher with the Taxation Research Institute. "Their burden was even heavy when taking into consideration the small pre-tax deductions they enjoyed and their low economic efficiency."

Zhang argued that unification is a safe option for the government to take, as it is unlikely to have a major impact on revenues. Although it may not be popular with foreign firms in China, which will face a tax increase, Zhang argues that: “What foreign companies cherish most in China is a stable economic and social environment, not merely tax favours.”

There are expected to be two key areas of reform that will see firms exempted from VAT on equipment purchases, currently levied at 17%, and the unification of corporate tax for domestic and foreign businesses. The scheme is to be piloted in the three north eastern provinces of Liaoning, Jilin and Heilongjiang from January 2004 and is designed to encourage firms in the so-called Chinese ‘rust belt’ to invest in technology.

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