Tax relief prompts Chaoda expansion

PUBLISHED : Wednesday, 25 February, 2004, 12:00am
UPDATED : Wednesday, 25 February, 2004, 12:00am

Vegetable grower Chaoda Modern Agriculture (Holdings) may spend 120 million yuan to build two additional processing plants on the mainland after the Communist Party called for measures to support the agricultural industry.

The two plants would bring Chaoda's mainland processing facilities to five. The firm said its proposed operations would be higher up the valued-added food chain, producing frozen, pickled and vacuum-packed vegetables.

The company's existing plants - two in Shanghai and one in Liancheng, Fujian province - do simple processing such as vegetable cleaning, shredding and packaging. Chaoda did not say where the new plants would be located or how the projects would be funded but it raised $700 million last month through a top-up placement.

The Communist Party last month called for a reduction in value-added tax for the agricultural processing industry. The order also said speciality produce should be exempt from taxes, while foreign-invested companies should enjoy the preferential tax treatment given to mainland companies.

Under current rules, domestic and foreign companies must apply for special status - State-Level Agricultural Leading Enterprise - to receive the preferential tax treatment. For foreign companies, approval is not always guaranteed.

Government agencies have yet to act on the party order.

Chairman Kwok Ho said the order removed uncertainty over whether a foreign-invested company such as Chaoda could enjoy preferential treatment.

The company's subsidiary, Fuzhou Chaoda Modern Agriculture Development, was designated a State-Level Agricultural Leading Enterprise at the end of 2002.

With the party order, 'relevant authorities have to provide the same fiscal, tax and financial support to [agricultural companies] regardless of their ownership', Mr Kwok said.

Chaoda must apply every two years to receive the preferential treatment, which includes full exemption from income taxes.

Because the tax benefits are not guaranteed to foreign companies, Chaoda's previous auditor PricewaterhouseCooper required it to make a provision for the corporate income taxes it would owe without the special treatment.

Such provisions will not be necessary once the central government clearly states that foreign agriculture companies can enjoy the tax benefits.