Beijing unveils incentives under new tax regime

PUBLISHED : Thursday, 13 December, 2007, 12:00am
UPDATED : Thursday, 13 December, 2007, 12:00am
 

Beijing has for the first time defined income tax incentives for environmentally friendly industries and smaller enterprises as part of a new tax regime starting January 1.

The central government said yesterday that companies engaged in agricultural production and forestry would have their income tax waived next year, while infrastructure firms investing in railroads, ports, airports, public transport, water supply and electricity generation would have income tax waived for three years and halved for another three years.

The new regime also allows smaller enterprises to pay 5 per cent less income tax at 20 per cent, giving them a competitive advantage over larger enterprises.

Hi-tech companies will be subject to a 15 per cent income tax rate, among the lowest.

While welcoming a more defined set of new rules, accountants said details of changes for manufacturing industries, the most controversial area, remained unclear even though the new regime will take effect in the new year.

'Sweeteners are being offered to smaller enterprises, which shows the government encourages startups,' said KPMG Guangzhou-based tax partner Bolivia Cheung.

'However, manufacturing industries are expected to pay more tax, although the details are pending.'

She added that the tax rules corresponded with the central government's policy to shift from a labour-intensive production centre to a service-based, technology-oriented and green economy.

Beijing aims to align the tax rates of foreign and domestic companies to 25 per cent from the existing 33 per cent over five years from the beginning of next year to create a level playing field.

However, critics said tax incentives for smaller enterprises are insignificant. Manufacturing companies will pay income tax of 20 per cent instead of the standard 25 per cent rate if they report an annual profit of less than 300,000 yuan, net assets of under 30 million yuan and a headcount of fewer than 100 employees.

Simon Shi Kai-biu, president of the Hong Kong Small and Medium Business Association, did not think the new rules would significantly help the tens of thousands of manufacturers across the border.

'The state policy does not support manufacturing activities in coastal regions, especially in Guangdong,' he said. 'On top of higher tax rates, we will face a big headache in a few weeks when the new labour law comes into effect and production costs keep rising.'

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