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China Plans to Unify Corporate Tax Rate in 2006

China plans to unify its tax code as early as 2006, raising rates for foreign investors and lowering them for domestic companies as it seeks to meet pledges made on entry to the World Trade Organization (WTO).

The government plans a unified tax rate of between 24 percent and 28 percent, Liao Luming, director of the finance ministry's general office, said in Beijing, confirming a report in the Asian Wall Street Journal that cited Deputy Finance Minister Lou Jiwei.

Overseas companies now pay about 20 percent, while the domestic rate is 33 percent.

Tax breaks for foreign companies, particularly in special economic zones, have helped make China one of the world's largest recipients of overseas investment and fuelled the fastest growth among major economies.

China's economy, the world's sixth-largest, grew 9.9 percent in the fourth quarter from a year earlier.

Foreign direct investment in China was US$54 billion last year, the Ministry of Commerce said in January.

Total overseas investment in China had reached US$501 billion at the end of 2003, while contracted foreign investment rose to US$943 billion, the ministry said.

Chinese companies have been pressing for the change, saying the tax code gives overseas rivals a competitive edge.

The government promised to equalize tax treatment for overseas and domestic companies when it joined the WTO in 2001. The changes will take place in 2006 at the earliest following approval by China's lawmakers, Mr Lou said.

China offers preferential tax rates for companies such as Motorola Inc to attract expertise and technology that it believes the country needs to compete with the world's biggest economies.

(China Daily February 9, 2004)

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