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Company Taxes on Road to Unification

Yesterday, a top tax official at a press conference on the sidelines of the annual session of the 10th National People's Congress (NPC) said that moves to unify income tax burdens for domestic and overseas-funded firms will be sped up.

Xie Xuren, director general of the State Administration of Taxation, said at the Great Hall of the People in Beijing: "We have to adapt to conditions following our entry into the WTO in 2001 and boost fair competition among all businesses."
The NPC has listed the Law on Enterprises' Income Tax in its legislative plan for 2005.
NPC deputy Cheng Faguang, a member of the NPC Financial and Economic Committee, had said earlier on Wednesday that the income tax rates might be unified in 2008. "This was in my most optimistic forecast," he told Xinhua.
Xie said his administration has carried out in-depth research on the issue with other departments, and would accelerate taxation reform in line with legislative procedures.
The actual income tax rate has remained at 14 percent for overseas-funded businesses, much lower than the 24 percent for domestic firms, since the formulation of a preferential policy in the mid-1980s in a bid to attract foreign investment.
Experts and local companies have complained that the policy does not comply with WTO principles and is a kind of discrimination against domestic firms, as well as reducing tax revenue.
Xie said it would also be necessary to raise the baseline of personal income tax due to increases in urban salaries and personal expenditure.
He said the Ministry of Finance and the tax administration have drafted a preliminary plan for the raise and will submit it to the State Council, China's cabinet. It will then go to the NPC for further deliberation and, once approved, the current law will be amended, Xie explained.
Chinese citizens pay personal income tax on their salary and ten other forms of income. Since 1980, income over 800 yuan (US$97) has been taxed, though this has been adjusted in some areas of the country. Without a rise in the baseline, there are concerns that the wealth gap will only increase.
At the same press conference, Finance Minister Jin Renqing expressed confidence in financing reform of state-owned commercial banks.
"We have to pay for the transformation of state-owned banks into joint-stock banks and for their asset reshuffle, and the Treasury is ready to foot the bill," said Jin.
Jin said the Finance Ministry has issued 270 billion yuan (US$32.5 billion) in treasury bonds to boost the sector, and will probably finance the separation of an additional 1.4 trillion yuan (US$168 billion) of non-performing assets from state-owned banks.
Jin also said the government is determined to levy fuel tax, but needs to find an "opportune time" to do it. The aim would be to help cut consumption of gasoline and diesel oil and preserve the environment.
To maintain stable prices, "we need further study on how to balance the interests of various social groups," said the minister, adding that it would be unwise to introduce fuel tax when oil prices are soaring on the international market.

(Xinhua News Agency March 10, 2005)

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