Unified taxation plan for businesses delayed

PUBLISHED : Friday, 28 January, 2005, 12:00am
UPDATED : Friday, 28 January, 2005, 12:00am

A common scale for domestic and foreign firms will not come in next year

Beijing's plan to unify corporate tax rates for domestic and foreign companies looks set to be delayed, with a Ministry of Commerce report revealing the proposal will not be put to the national legislature this year.

The report, which contradicts remarks last week by senior Ministry of Finance officials, highlights the rift between the two ministries.

The Ministry of Commerce is in charge of attracting foreign investment, while the Ministry of Finance is responsible for tax collection.

The nominal corporate income tax rate for domestic companies is 33 per cent, but only 15 per cent for foreign-funded companies. Unifying the rates would effectively put an end to the tax favours which have been offered to foreign companies since China embarked on its open-door policy.

Quoting a researcher at the Academy of Foreign Investment Research under the Ministry of Commerce, the Beijing Times, an affiliate of the People's Daily, said the unification of the tax regimes would be postponed.

The proposed legislation would not be presented at this year's annual session of the National People's Congress to be convened in March, it said.

'The tax-unification proposal for domestic and foreign-invested firms will not be debated at this year's NPC session,' the researcher was quoted as saying. 'Thus it is also impossible for the law to be enacted next year.'

Neither the Ministry of Commerce nor the academy would confirm or deny the report yesterday.

'We only confirm announcements made by the ministry. And as far as we know, the ministry has not made such an announcement,' a ministry spokeswoman said.

The debate between the two ministries became public recently, with officials openly providing different views on the issue. Finance Minister Jin Renqing and his deputy, Lou Jiwei , have spoken of the urgent need to unify the tax rates, saying this year would be the right time. State Administration of Taxation director Xie Xuren has also made similar comments.

Academics said vested interests were responsible for the difference of view over the issue.

'The Ministry of Finance and the taxation administration are focused on the reform of China's taxation system, while the Ministry of Commerce is responsible for absorbing foreign investment,' said Zuo Liancun , of the School of International Trade and Economics at the Guangdong University of Foreign Studies.

Professor Zuo said the mainland should merge the rates sooner rather than later to meet requirements of the World Trade Organisation.

Last month, the Beijing-based China Business Times reported that 54 foreign-funded companies planned to ask the State Council for a grace period of five to 10 years before the implementation of tax unification.