BEIJING - The
concerns of domestic enterprises and the need to
continue attracting foreign investment will be
taken into consideration while formulating a
unified corporate income tax, a top tax official
said January 17.
Foreign companies
operating in China enjoy a preferential tax rate
as low as 15%, compared to 33% for Chinese firms.
A resolution at the Fifth Plenary Session of the
16th Congress of the
Communist Party of China last
year decided to unify the two systems.
The
State Administration of Taxation (SAT) will
balance domestic firms' demand for a level playing
field with concerns that abolishing preferential
tax rates could slow down the influx of foreign
capital, said Wang Li, deputy director of the SAT.
"We are consulting and working with related
departments on this issue," Wang told a press
conference hosted by the State Council Information
Office. On nationwide reform of the value-added
tax (VAT) system, Wang said feasibility studies by
financial authorities are under way.
A
pilot project on VAT reform started in 2004 and is
progressing "steadily" in the three northeastern
provinces of Heilongjiang, Jilin and Liaoning, he said. But
Wang did not give a timetable for the
implementation of the much-anticipated tax reforms
in the two areas.
According to
international custom, enterprises' expenditure on
fixed-asset investments is deducted from the
amount taxed, but China did not adopt this
practice when the current VAT system started in
1994, mainly to deter overheated investment then.
In recent years, both the government and
enterprises have felt the need to change the law
so that enterprises are not overtaxed.
The
country's high tax revenues were another issue
addressed at the press conference. In many
countries, the annual growth rate of taxes is
roughly 3 percentage points higher than Gross
Domestic Product (GDP) growth, but in China the
difference is much bigger. The country's GDP was
estimated to have grown 9.8% last year, but tax
revenues rose by 20%.
SAT Director Xie
Xuren explained that a major reason was that tax
growth rate was calculated at current prices and
economic growth rate at comparable prices. "If
calculated at current prices, the GDP may have
grown by 13 to 14% last year," he said. In
addition, taxes are mainly collected from
industries and services, which grow faster than
GDP; but the size of the economy also covers such
slow-growing sectors as agriculture, which is
another reason why the tax growth rate can be
higher than the GDP growth rate, Xie
said.
Trade is also a factor: While foreign
trade contributed to GDP growth with a trade
surplus, its share in tax revenues is high because
an overwhelming majority of imports are subject to
tariffs.
