Chinese Finance Minister Jin Renqing said that the country will
provide equal tax treatment for domestic and foreign-funded
enterprises as the State Council speeds up tax system reform.
Foreign-funded companies now enjoy preferential tax policies
than domestic companies, though nominal income tax was the same for
both, Jin Renqing told a national meeting on fiscal status in
Beijing on Wednesday.
A heavier burden for domestic enterprises is neither conducive
to fair play nor in line with the practices of the World Trade
Organization, at a time when China's reform and opening-up drive
was entering a new stage, he said.
"The current income tax rules for enterprises should be
reformed," Jin noted, emphasizing that unified tax rules and
policies should be enacted for domestic and foreign-funded
enterprises while tax rates were appropriately adjusted.
Jin did not say what the benchmark for a unified corporate
income tax rate would be, but analysts predicted it could be around
20 percent of a company's revenue. The tax rate for the state-owned
firms is currently set at 33 percent.
Tax reforms coming next year
Meanwhile, Xie Xuren, director of the State Administration of
Taxation, said China plans to steadily push forward tax system
reforms next year.
"The reforms will include value-added tax (VAT) reforms, tax and
fee reforms in rural areas and income tax reforms," Xie said at a
national tax working conference in Beijing Wednesday.
China is currently practicing a production-based value-added tax
system.
Under this old system, fixed assets are classified as consumer
goods and are subject to tax.
As a result, enterprises cannot claim tax deductions for
purchase of fixed assets such as equipment and machinery.
The system places a heavy burden on enterprises wanting to
increase their fixed-asset investment, especially for capital-and
technology-intensive enterprises.
The system thus poses a hurdle to economic restructuring.
Experts have been suggesting for many years that the government
should replace the present system with a consumption-based one,
which allows companies to deduct such taxes when importing new
machinery and equipment.
They also suggest that the new value-added tax system should be
expanded to cover more activities currently subject to business
taxes such as transportation and telecommunications.
"Starting next year, the new tax system will be implemented in
eight industries in the old industrial base in northeast China,"
Xie said, not specifying the eight industries.
Then, based on the experience gained from this trial tax reform
project, the government will implement the system across the
country, he said.
Zhang Peisen, a senior researcher with the Taxation Research
Institute under the administration, said it is the right time for
China to reform its old tax system.
"China's economy has been experiencing a period of stable
development and the country's consumer prices have been at lower
levels, and these are favorable conditions for the reform," Zhang
said.
The Chinese economy will continue to grow at more than 8 percent
over the coming several years, while the rise in consumer prices
will be at a rate of less than 5 percent up to 2008, he said.
"The stable increase in tax revenues since 2000 has also laid a
solid foundation for the reform," Zhang said.
The country's tax revenues, which have grown from 250 billion to
300 billion yuan (US$30.1-36.1 billion) a year since 2000, will
continue to grow at a rapid pace in the coming years, he said.
China's tax revenues this year, excluding tariffs and
agriculture taxes, rose a year-on-year 20.9 percent to 1.98
trillion yuan (US$239 billion) by December 20, figures from the
State Administration of Taxation indicate.
"Tax revenues are likely to surpass 2 trillion yuan (US$240
billion) for the whole of the year, representing an increase of
more than 300 billion yuan (US$36.1 billion) over last year's
figures," Xie said.
Next year, China will deepen tax and fee reforms in its rural
areas to further reduce the financial burden of farmers, he
said.
With the exception of taxes on tobacco, the government will
eliminate taxes on special agriculture produce across the country,
Xie said.
The government will lower the average agriculture tax rate,
which stands at about 8.4 percent now, by 1 percentage point next
year, he said.
"In areas where conditions are ripe, agricultural taxes could be
reduced further or be eliminated," he said.
The government will also make full preparation for the reform of
the enterprise income tax law and personal income tax law next
year.
According to Zhang, since China has become a member of the World
Trade Organization, the country should unify its enterprise income
tax policies.
The country is now practicing separate enterprise income tax
policies for domestic and foreign-funded companies.
The income tax rate for domestic companies is 33 percent, while
that for foreign-funded companies is only 17 percent.
"The country should implement the same treatment for
foreign-funded and national companies, so that they compete on an
equal footing," he said.
In recent years, personal income tax has become a hot topic,
because the tax-free income level, which stands at 800 yuan
(US$96), is considered to be too low.
Present personal income tax rates are divided into 11 categories
based on income sources, and is only loosely related to an
individual's total annual income.
Taxation is aimed at people with high-level incomes to promote
economic development and social stability.
As a result, the current 800-yuan (US$96) starting point for
taxation on monthly income needs to be raised.
(China Daily December 25, 2003)