The Chinese central government is reviewing a plan aimed at revising the country's enterprise income tax systems.

Experts suggest the revision will likely become legislation next year, despite previously being postponed by the National People's Congress (NPC).

China has two sets of tax rules, with different rates and incentives, for domestic and overseas-funded enterprises.

The revision is expected to merge the two systems and impose a 25-per-cent rate on enterprises, regardless of their ownership structure.

The Standing Committee of the NPC, China's top legislature, recently ruled out the possibility the enterprise income tax law will be revised this year.

On the Standing Committee's agenda issued at the end of last month, tax-related legislation is not on the committee's radar for this year.

"The tax plan is still under State Council review," said an official with the State Administration of Taxation (SAT). She declined to give further details.

But sources predict the NPC will most likely amend the enterprise tax law sometime next year, after all preparations are completed.

"Revision of the tax laws will be one of the key tasks of the incumbent government," said Zhang Peisen, a senior researcher with SAT's Taxation Research Institute.

"But when to do so will be the State Council's decision."

China imposes a 33-per-cent income tax rate on enterprises, although the levy might vary for overseas-funded firms in different regions.

However, considering preferential policies and other incentives, China's actual enterprise income tax rate is estimated at 26 per cent for domestic firms and 15 per cent for overseas-funded firms, experts said.

"Resetting the tax rate will inevitably reduce the taxes of domestic firms, while raising those of overseas-funded ones," said Yang Chongchun, head of the China Taxation Association and member of the Chinese People's Political Consultative Conference's National Committee.

"But it is unlikely to have a severe impact."

Preferential tax policies - such as the rules exempting overseas-funded firms from paying income taxes for two years after they make profits, and then paying only half their taxes for three years - will remain unchanged for a few years, Yang said.

That will guarantee foreign direct investments (FDI) into China will not be interrupted, Yang added.

China last year overtook the United States as the world's No 1 recipient of FDI, which now contributes more than 20 per cent of the country's gross domestic product (GDP) growth.

Overseas-funded enterprises also provide 18 million job opportunities nationwide, indicate National Bureau of Statistics' figures.

"Slightly higher tax rates will not affect overseas investors' decisions to establish enterprises on the Chinese mainland," Yang said.

"The country still has numerous other competitive advantages over its rivals, and will continue improving its business environment."

China's comparatively low cost of labour and its vast, fast-growing market have so far been the main attractions for manufacturers seeking to build the country into a "global workshop," economists said.

However, plans to revise the enterprise income tax law worries some overseas-funded enterprises.

"Our clients are concerned about the tax law revision," said Pauline Zhang, a tax expert and partner at Deloitte Touche Tohmatsu's Beijing office.

"And we have been researching this and discussing with the SAT for quite a while."

Zhang told China Business Weekly the preferential tax breaks will likely disappear a short time after the tax systems are merged.

"Foreign investors worry about the possible impacts of the tax law revision when they make new investment decisions or restructure their existing investment in the country," she said.

Zhang predicted more favourable tax policies will be extended to firms within sectors supported by the government.

The government hopes the tax incentives will spur industrial restructuring and woo investments into some high-end industries, sources said.

Industry-differentiated tax policies are unlikely to replace the current ones, which vary from region to region, any time soon, Yang said.

Since China implemented its economic reforms 24 years ago, the country's local governments have competed to offer foreign firms preferential tax policies.

SAT issued rules early last month saying foreign companies which hold less than 25 per cent of a domestic firm will enjoy the same conditions, including tax charges, as domestic firms.

The move was widely seen as a step by the government towards unifying the enterprise income tax policies.

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