Chinese Lawmaker Says Time Is Ripe For Unification Of Corporate Tax

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

07 March 2005

Chinese lawmaker, Cheng Faguang stated in the national media last week that the time is now right for the country to do away with the separate tax systems for domestic and foreign-funded firms, and replace them with a unified tax rate.

Cheng, a member of the National People’s Congress Financial and Economic Committee, was quoted by state news agency Xinhua last week as noting that the current system breaches World Trade Organisation rules and operates to the detriment of domestic firms, whilst also reducing tax revenues to the state.

Moreover, the existence of lower tax rates for foreign funded firms encourages dishonesty in the tax system and costs more for the state to administer, Cheng argued.

Currently, foreign-backed firms operating in China pay tax on income at a rate of around 14%, compared to a rate of 24% paid by domestic enterprises.

Under reforms outlined earlier in the year by Lou Jiwei, vice minister of Finance, Beijing is soon likely to bring about change in the tax system by removing and simplifying some tax incentives, and offering tax breaks on a regional basis, or by industrial sector, rather than by domicile.

However, Lou indicated that these reforms may be introduced over a long transition period, possibly up to ten years.

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