A draft Corporate Tax Law that will unify taxes for domestic and foreign-invested enterprises will be tabled in China's legislature for first reading this month, an insider told Xinhua on Tuesday.
"The major obstacles in the legislative process have been cleared, only a few technical problems remain to be solved," he said.
The State Council, China's Cabinet, approved the draft law in principle at the end of September after hearing the Ministries of Finance and Commerce present their research on the viability of unified enterprise taxes.
"An agreement has been reached among local authorities and governmental departments. The legislative process will not be reversed," the insider said, adding that technical revision of the draft law was still possible.
Chinese authorities intended to submit the draft to the Standing Committee of the National People's Congress for a first reading in August. However, objections from foreign investors and concern about a dramatic decline in foreign investment inflows led to a delay.
Sources close to the drafting said that unified tax rates will fall into a 24-27 percent range, which is lower than the maximum rate of 33 percent paid by domestic firms and higher than the 15 percent paid by foreign-invested companies.
Foreign-invested companies may enjoy a 3-5 year transition period. But taxation privileges will no longer be used to attract foreign investment. Instead, tax policy will be used to upgrade China's industry, and especially to encourage the development of sectors such as high-tech, infrastructure facilities and environmental protection.
When the new law is implemented, all enterprises, large or small, local or foreign-invested, will receive the same fiscal treatment, according to Ministry of Finance Tax Policy Department director Shi Yaobin.
(Xinhua News Agency October 18, 2006)