Equalize corporate taxes

(China Daily)
Updated: 2007-03-09 07:26

A new law to unify income taxes for both Chinese and foreign enterprises has been in the pipeline for a while. It is high time to get it passed to create an equal taxation footing for all businesses in the country.

The draft enterprise income tax law has been presented to the National People's Congress, the top legislature, for deliberation.

We believe that the explanation of the new law that Financial Minister Jin Renqing delivered yesterday makes a compelling case for lawmakers' approval.

Preferential income tax rates for foreign companies have definitely played a significant role in attracting foreign investment since China adopted reform and opening-up policies at the end of the 1970s.

By the end of last year, the country had made use of foreign investment worth $691.9 billion. Such investment not only helped satisfy China's need for capital but also brought much-needed technology and managerial expertise to boost the overall efficiency of the Chinese economy.

Given the huge uncertainties foreign investors faced, especially in the initial phase of the transformation of the Chinese economy from a planned economy to a market economy, it was reasonable to give foreign investors tax breaks to cover the risks in an emerging market like China.

However, three decades of market-oriented reforms along with accelerated integration of the Chinese economy with the global market in recent years have brought about a sea change in the country's social and economic conditions. Competition between domestic firms and foreign-funded enterprises has intensified as the country opened a growing number of domestic sectors to foreign investors following China's entry into the World Trade Organization.

It has become evident that preferential income tax rates for foreign-funded companies now amount to unnecessary discrimination against domestic enterprises.

To unify the corporate tax rate for foreign-funded companies with that of Chinese enterprises at 25 percent, as the draft proposes, will make the country a level playing field for all enterprises. Also noteworthy is that the new law gives tax incentives for high-technology projects and other investments that promote energy conservation and cut pollution.

This incentive alone should make the new law more than welcome, considering the country's urgent need to shift away from extensive growth to pursue balanced and sustainable growth.

(China Daily 03/09/2007 page9)