Beijing - China has doubled the tax threshold for domestic firms in a move to
narrow the taxation gap between indigenous and foreign-invested companies, the
State Administration of Taxation (SAT) said on Friday.
The new tax rate, which took effect in July is expected to cause a loss of 12
billion yuan (US$1.5 billion) in corporate tax revenue this year. However,
the State Administration of Taxation said it is "a bearable effect" on the
country's fiscal revenue.
The move followed a report from the National Statistic Bureau which said that
the monthly income of urban and township residents averaged 1,533.75 yuan last
year, almost twice the amount in 1999.
A senior SAT official who asked not to be identified described the move as "a
significant adjustment" that is aimed at equalizing taxation rates between
domestic and foreign firms.
Chinese authorities had hoped to issue a unified corporate income tax law in
2008 but face enormous obstacles.
Last year, fifty foreign-invested companies spoke against the reform
proposal, hoping to retain existing preferential policies.
Zhang Peisen, head of a policy research group of the State Administration of
Taxation said the tax change is "a justified step", adding that "this adjustment
certainly gives a hint at the government's resolve on tax reform."
Chinese authorities had scheduled to table a draft Customs Corporate Income
Tax Law to the Standing Committee of the National People's Congress, the
Legislature, for first read in August, but objection from foreign investors and
growing concern for a drastic decline in foreign investment inflow has caused a
delay.
Currently, there are two tax rules in use. One is the Corporate Income Tax
Law applied to only foreign-invested companies, the other is the Provisional
Ordinance on Corporate Income for Local firms.
Although China began to levy a 33 per cent tax rate on both local and foreign
companies from 1994, the Corporate Income Tax Law which applies only to
foreign-invested companies contains a number of preferential policies that cuts
the tax rate for foreign-funded companies to 15 percent or less.
Co-existence of the two parallel tax rules does not accord with the
international practices and has driven local firms into disadvantage, said
Deputy Commissioner of SAT Wang Li.
"Considering the resistance in legislation process, China has made a right
step in the reform," said Zhang, stressing that the tax threshold adjustment was
the statutory right of the State Council.
