Mainland businesses welcome new tax law

But local officials say end to preferential rates will spook foreign investors

The proposed corporate income law unveiled by Finance Minister Jin Renqing to National People's Congress delegates yesterday was welcomed by those from business backgrounds for putting domestic and overseas companies on an equal footing.

But the proposed legislation still concerns jittery local officials, worried that their regions might lose their appeal to many foreign investors.

The bill seeks to unify the rate of income tax paid by foreign and domestic firms at 25 per cent. If passed, it will end a decades-old practice aimed at attracting foreign investment that makes domestic firms pay 33 per cent income tax while their foreign counterparts are subject to an average 15 per cent.

The law was in response to long-standing calls from domestic companies for 'fair competition' and was aimed at increasing support through tax breaks to hi-tech, environmental protection and energy-saving companies, Mr Jin said.

'China's economy has been growing rapidly. Company profits have been rising substantially, and fiscal revenue has maintained a good rate of increase. The timing for the reform is good when the country and enterprises have a strong capacity to handle its impact,' he said.

The legislation is scheduled to come into effect next year and, once that happens, China's tax revenue is expected to decrease by 93 billion yuan, with a projected 134 billion yuan drop off from domestic companies and a 41 billion yuan increase from their foreign counterparts, said Mr Jin.