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Draft Corporate Income Tax Law Revised for Final Vote
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Chinese lawmakers have agreed that the draft corporate income tax law is now mature for vote, after making 15 minor revisions to it during a five-day deliberation.


The presidium of the ongoing annual session of the National People's Congress (NPC), China's top legislature, reached a decision on Monday to submit the revised bill to final vote for approval.


All NPC deputy groups deemed it necessary to unify the income tax rate for domestic and foreign enterprises, since it will help create a fair and standard environment for competition and improve China's socialist market economy, said Yang Jingyu, chairman of the NPC's Law Committee.


Some legislators suggested further revisions, some of which have been adopted after careful studies, said Yang while briefing the presidium meeting on the deliberation work by NPC deputies.


One revision is to raise the proportion of a company's charity donation against its annual profits that can be exempted from tax from the original 10 percent to 12 percent, according to the meeting.


"It aims to encourage more companies to be engaged in donation to public welfare," the meeting said.


Specific listing of infrastructure constructions, in which investments can enjoy tax breaks, has been erased from the draft, as some NPC deputies pointed out that public facility projects in need of the state's major support shall be adjusted according to the practical situation by the State Council.


The original draft had proposed that enterprises investing in the construction of ports, wharves, airports, railways, highways, power plants and hydropower projects shall get tax cut or remission.


Some of the projects listed above, already with high returns, shall be further studied to see whether they deserve a long-term preferential tax policy, some lawmakers say.


The bill has also been revised to offer tax incentives to investments in water-saving and energy-saving projects.


The draft enterprise income tax law, which suggests unified income tax rate for domestic and foreign companies at 25 percent, was submitted to nearly 3,000 legislators for examination last Thursday at a plenary meeting of the parliament annual session.


During the deliberation, many NPC deputies voiced their earnest expectation for a new enterprise income tax rate.


"If the draft is passed, we will finally be able to stand on a level playing field with our foreign counterparts," said Chen Guofeng, an NPC deputy and also board chairman of a textile company in northeast China's Jilin Province.


China's current dual-income-tax mechanism has long been the subject of intense debate. Many Chinese economists, government officials and business leaders have openly criticized the tax policies as being unfair to domestic businesses.


The actual average income tax burden on Chinese companies is 25percent, while that on foreign enterprises is 15 percent. The draft sets a new tax rate of 25 percent for both.


Many people believe that the unequal rate handicaps domestic players who have been facing tougher competition since China joined the World Trade Organization (WTO) in 2001.


NPC deputy Huang Wei believed the increased income tax rate for overseas enterprises will not weaken their enthusiasm over investment in China, as they care more about the country's broad market and sound economic prospect.


"It may exert small influence, but will facilitate the improvement of the investment structure," Huang said.


Jin Renqing, Minister of Finance, had previously explained that the implementation of the law would not affect certain industry-specific preferential tax policies.


The draft has retained tax incentives for investment in projects concerning environmental protection, agricultural development, water conservation, production safety, high-tech development and public welfare undertakings.


Lao Ngai Leong, an NPC deputy from Macao, noted that the increase can be tolerated by foreign investors, who have gained huge profits through investment in Chinese market and should make more contributions to the country's development.


Shen Baochang, party chief of the Beijing's Daxing District and also an NPC deputy, said that a five-year transitional period will further offset the impact on foreign companies.


The income tax rate will be gradually increased to 25 percent during this period, and old foreign enterprises can still enjoy tax breaks within a regulated time limit as before, according to the draft.


Generous tax incentives have fueled foreign capital influx. China has been one of the world's top destinations for foreign direct investment, taking in US$53.5 billion in 2003, US$60.6 billion in 2004, and US$60.3 billion in 2006 in terms of the amount actually used.


Lu Jianzhong, an NPC deputy and vice director of the private enterprise association of Shaanxi Province in northwestern China, pointed out the 25-percent tax rate is still favorable compared with those in some countries and regions.


The average enterprise income tax rate is 28.6 percent in 159 countries and regions around the world in which an enterprise income tax is applied, while that in China's 18 neighboring countries and regions it is 26.7 percent.


(Xinhua News Agency March 13, 2007)


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