Taxation System to Witness Great Change

Li Wanpu, vice chief of the Policy Regulations Section of State Bureau of Taxation, indicated a few days ago that China would take the initiative to revise and delete some tax system rules which are not in line with WTO. The taxation system would give the full play to the role of regulation of tax revenue, protect the development of domestic industry, promote the structural readjustment of the economy, and create conditions for the fair competition of enterprises.

Li pointed out that the value-added tax imposed on the existing production would be extended to the consumption. As some products are related to the national security, hygiene, environmental protection, etc, they can enjoy the different import tax policy and "zero tax rate". Preferential tax policy are applied to replace the present general tax upon the foreign enterprises. "We must take precaution against the impact after entering WTO."

Li said the revision was jointly drawn up by the Ministry of Finance, State Bureau of Taxation, and State Economic Restructuring Office. It includes the following several respects:

First, in order to protect immature industries, the value-added tax will be transferred from production to consumption so that we can reduce the production cost of the domestic enterprises and increase the competitiveness of the products.

Secondly, for those products related to the national security, hygiene, and environmental protection, different import tax in terms of their technical standard will be implemented to hinder some unqualified foreign products outside of the customs. This is the international practice commonly used by Japan, South Korea and other developed countries.

Thirdly, to those products which have the international comparative advantages, such as textile, electrical household appliances, mineral products and building materials products, we implement the preferential tax policy to promote the further development.

Fourth, implement zero tax rate to the export products. For the products entering the export processing zone, we implement the tax refund, strengthening their price competitiveness. After entering WTO, we will implement thorough zero tax rate.

Measures against the impact after entering the WTO are:

First, unify the tax policies to the insurance enterprises both at home and abroad as soon as possible, guarantee that the domestic financial and telecommunications enterprise stand firmly after the WTO entry, and participate in the international competition actively. For the financial insurance companies now we still implement relatively strict policy, but we must unlock the policy progressively after the WTO entry. Now the taxes to the internal and external banks and insurance enterprises are different, with 15% income taxes on foreign companies, lower than that on domestic-invested enterprises. Afterwards, it will be unified.

Secondly, we should implement high consumption tax rate on some consumption products. For instance, the large power automobile, parts fittings, mixing type cigarette, etc., in order to protect the domestic market.

Thirdly, the preferential policy enjoyed by foreign enterprises will be abolished progressively. We will unify the tax rates on domestic and foreign enterprises.

(People's Daily 10/18/2000)

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