China's proposed unified company income tax for domestic and
foreign-funded enterprises will have little effect on foreign
investment, Bert Hofman, World Bank (WB) lead economist for China,
said on Thursday.
The proposed unified tax rate was 25 percent, about the average
rate of corporate income tax around the world, Hofman said.
Developed countries in the Organization for Economic Cooperation
and Development (OECD) charged on average slightly more and
developing countries, notably those with relatively recent tax
laws, charged a bit less.
"China's rate seems quite competitive for attracting foreign and
domestic investment," Hofman said.
"There is little reason to believe that the new law will have a
major effect on foreign investment."
China's top legislature, the National People's Congress (NPC),
on Thursday, started examining the draft law on enterprise income
tax, which suggests a unified income tax rate for domestic and
foreign-funded companies at 25 percent.
Delivering an explanation to the lawmakers, Finance Minister Jin
Renqing said the law was drafted to "establish a scientific and
standardized corporate income tax system uniformly applicable to
various types of enterprises and to create an environment for fair
competition".
The rate for Chinese companies is currently set at 33 percent,
but tax waivers and incentives are granted to foreign-funded
enterprises.
Official estimates show the average tax on foreign-funded
enterprises is 15 percent while that on the domestic enterprises is
25 percent.
Many Chinese economists and business leaders have openly
criticized the dual standards, which they say are unfair to
domestic enterprises.
Chinese officials have explained that the proposed tax rate is
mainly intended to ease the tax burden on domestic firms and to
minimize the rise for foreign-funded enterprises.
"Foreign investors are of course interested in tax laws, but
also in many more things, including the broad investment climate,
the domestic market, labor conditions, economic stability, and the
like," Hofman said.
"From the surveys we have been doing on investment climates
around the world, we know that China's investment climate is quite
competitive, with good infrastructure, relatively efficient
government bureaucracy, and low labor costs," Hofman said.
Hofman's views have been echoed by many economists from China
and international institutions.
China had the competitive advantages in public services,
infrastructure, domestic market, human resources, macro economic
stability and the like, to lure foreign funds, said Mei Xinyu, an
expert with the International Trade and Economic Cooperation
Research Institute under the Ministry of Commerce.
The new law would play help to standardize the Chinese market
order and enhance the independent sustained development of the
national economy, Mei said.
Experts said the tax change was actually a commitment to the
World Trade Organization for equal treatment to domestic and
overseas investors.
The draft law still has preferential stipulations that encourage
investment in energy and resources-saving and environment-friendly
projects.
"Such a policy will help improve and upgrade economic structure
of China and absorb key technologies," said Peng Longyun, senior
economist with the China Resident Mission of the Asian Development
Bank.
China's investment climate, public services and various systems
had greatly improved over the past 20 years of reform and opening
up.
"It's a good time to unify the enterprise income tax," he
said.
"This also proves that the government is determined to continue
its reform and opening up policies, and work hard to improve
investment conditions and climate."
Hofman agreed the law came at a "good time". "Profits are high
at the moment, and the disadvantages that were experienced by
foreign enterprises in the early days of opening up have by and
large disappeared.
"With the passage of the law, China will become more like other
market economies, as there are very few countries around the world
that have separate tax laws for domestic and foreign enterprises,"
Hofman said.
Bill Miao, chief of Israel's Tadiran Telecommunications China
subsidiary, said the firm regarded the unified tax rate as a
resumption of normal status, and "everybody now stands at the same
starting point".
"The market potential is what we think about first," Miao
said.
He Tong, public relations manager of Nestle (China), said, "For
foreign investors, tax exemptions are less important than China's
overall environment including the social stability, rapid economic
development and low cost labor."
Alex Choi, chairman of Tianjin Aus Circuit Electronic Company
Ltd, which has invested US$34 million in the development zone of
Tianjin, said, "We came to China not for its preferential tax
system, but for its vast market potential and the legal environment
which is transparent, fair and standardized."
"The dual income tax standards are unfair to domestic businesses
that have to face tougher competition after China entered the World
Trade Organization (WTO)."
Ma Jun, a Deutsche Bank economist, said the proposed new tax
rate was still low, compared with 28.64 percent charged by 159
countries on average and more than 40 percent in the US and
Japan.
The new law would encourage the investment favored by the
government by allowing tax breaks for high-technology projects,
energy conservation and environment-friendly industries, Ma
said.
"This would help create a sound investment environment and
promote China's industrial restructuring," he said.?
(Xinhua News Agency March 9, 2007)