On Wednesday the Chinese State Administration of Taxation (SAT) said it would take effective steps to "secure a smooth corporate income tax reform."
China's top legislature is going to discuss and review in March the reforms aiming to adopt uniform corporate income tax rates for both domestic and foreign companies.
Currently there are dual income-tax structures under which domestic companies pay income tax at a nominal rate of 33 percent while their foreign counterparts -- who benefit from tax waivers and incentives to encourage investment in China -- pay an average of 15 percent.
Although the actual income-tax gap between businesses is less wide -- domestic companies pay around 24 percent and overseas-funded businesses 14 percent -- many believe that it handicaps domestic players who've been facing tougher competition since China joined the World Trade Organization (WTO) in 2001.
"Dual income-tax structures were quite necessary in the past and played a crucial role in attracting foreign investment and facilitating China's economy," Deputy Commissioner Wang Li of SAT told a press conference convened by the State Council Press Office. .
Along with China's WTO entry, the advancement of economic globalization, the establishment and optimization of the socialist market economy mechanism, the dual income-tax structure triggered new contradictions and problems, Wang said.
"The practice doesn't accord with the national treatment principle required by WTO rules, for instance, and is detrimental to the fair competition between companies of various forms," he said.
"It also triggered illegal tax evasion as some domestic companies had been found falsely passing themselves off as foreign companies to claim low rates," Wang said.
Under the draft law to be reviewed by the Fifth session of the Tenth Standing Committee of the National People's Congress, a unified tax rate of 25 percent for all types of enterprises would be introduced. Tax privileges would be offered to encourage technical innovation.
The SAT is now making preparations for relevant judicial explanation. Once the draft law is approved the administration would map out coordinated methods to secure a smooth reform.
China has been one of the world's top destinations for foreign direct investment, hitting US$63 billion in terms of the amount actually placed. This is up 5 percent on the previous year.
It reversed a downward trend in the first half of the year, but the outcry from foreign firms over the phasing-out of their tax privileges remain strong.
(Xinhua News Agency January 24, 2007)