The draft Corporate Income Tax Law is now under discussion at the ongoing NPC session, and will be presented for voting on March 16, 2007. A provision of particular interest stipulates the unification or standardization of the rate of taxation at 25 percent, applicable to both domestic and foreign companies. In our special series on the Corporate Income Tax Law, we'll be interviewing NPC deputies, entrepreneurs, industry leaders, and scholars for their take on the proposed unified tax rate, its significance, and potential impact on China's industry and economy. The following is our fifth interview with a group of entrepreneurs from Jiangsu Province. The sixth interview with Prof. Liu Jianwen of Peking University Law School comes tomorrow.   – Editor

 

Entrepreneurs attending the Fifth Session of the Tenth National People's Congress (NPC) in Beijing in their capacity as deputies have welcomed changes proposed by the draft Corporate Income Tax Law, but have also expressed the need for more detail in content, particularly in provisions regarding incentives and equal treatment for all companies, and implementation measures.

 

The draft was submitted for deliberation on Thursday, March 8. Its main provisions include: a unified tax rate of 25 percent for both domestic and foreign-funded enterprises; a 20 percent preferential rate of taxation for certain small low-profit enterprises and 15 percent for some hi-tech enterprises; a five-year transitional period for several foreign-funded enterprises; a standardized policy for actual expenditure deductions.

 

"This legislation is necessary and timely," Fang Yixin, board chairman of Tayoi Cosmetics Company, said during a panel discussion of the Jiangsu Delegation on Friday, March 9.

 

With the world's largest foreign exchange reserves and growing fiscal strength, China will be able to manage a substantial reduction in tax revenues, which will happen if the law is passed. Fang added that the country's improved investment environment and huge market will continue to attract foreign investors in spite of rising operation costs.

 

However, Fang suggested allowing some room for further tax cuts, proposing a taxation rate of between 22 and 24 percent.

 

Ju Zangwang, vice general manager of Beijing Sanan Agricultural Science and Technology Co. Ltd, spoke highly of tax preferences for companies in less robust industries such as agriculture, forestry, infrastructure construction and environment protection. Ju's company, for one, will benefit from the changes. He added that the proposed preferential policies will reinforce their core strengths and boost investment enthusiasm.

 

"The preferential tax policies for agricultural enterprises accord with China's actual conditions and will help solve long-standing problems in rural areas, while the support for small and hi-tech companies will have a positive impact on start-ups and employment."

 

Xu Changjiang, board chairman of Jiangsu-based Wenfeng Group, has also been looking forward to the tax law for a long time.

 

 

Xu Changjiang from the Jiangsu Delegation to the Fifth Session of the Tenth NPC

 

"The new law will help to ensure equal competition in the market," Xu told china.org.cn in an interview.

 

Wenfeng Group is a Top 500 enterprise in China. However, the heavy tax burdens have made it harder for the company to compete with foreign enterprises, particularly in the retail sector.

 

"The lowering of corporate income tax from 33 percent to 25 percent means that domestic companies will record higher profits," he said.

 

By his calculations, if pretax profits are about 300 million yuan (US$38.74 million), which was the case in 2006, reduced taxes would translate about 20 million yuan (US$2.58 million) more in net profits.

 

According to Minister of Finance Jin Renqing, if the new tax law is implemented in 2008, domestic corporate income tax payments will drop by 134 billion yuan (US$17.3 billion).

 

Fiscal issues aside, entrepreneurs are also calling for clear provisions on implementation. Article 59 of the draft law provides that the State Council is responsible for setting out detailed implementation measures.

 

Voting on the draft of Corporate Income Tax Law is scheduled for March 16. If approved, it is expected to take effect on January 1, 2008.

 

Anxious entrepreneurs are exerting pressure now in the hope that the law is implemented at a much earlier date.

 

Our previous interviews:

 

HK Deputy: Corporate Tax Increases Welcomed

 

Sichuan Deputy: Tax Cut Good News for Chinese Companies

 

Standardized Corporate Tax Rates for Level Playing Field 

 

Disabled Deputy: Raise Tax Relief for Donations

 

(China.org.cn by staff reprter Wang Ke, March 12, 2007)