THE Foshan municipal government has given Guangdong Fotao Group Corp, a Hong Kong listing candidate, an income tax rebate. According to Fotao's preliminary prospectus, the municipal tax bureau has given approvals, issued in June and October, to the Chinese ceramics maker for a fiscal subsidy equivalent to 18 per cent of the taxable income on the company and its wholly owned subsidiaries with effect from this year. The policy could change, if there was any switch in the mainland's laws and regulations, it said. Fotao has been subject to an income tax rate of 33 per cent for the past two years, compared with the progressive rate of up to 55 per cent in 1992. The company got refunds of 54 million yuan (about HK$50.2 million) in 1993 and 29 million yuan in 1994, decided by the municipal tax bureau on a discretionary basis. In the first five months of this year, Fotao paid 33 per cent income tax, but won refunds on an equivalent of 18 per cent of taxable income, or 12.33 million yuan. The effective rate for the company was three per cent in 1993, 23 per cent in 1994 and 17 per cent in the first five months of this year. Fotao also enjoyed substantial sales tax refund in 1992 and 1993, but the rebate had been insignificant since last year, following a national overhaul of the tax system in January 1994. Prior to 1994, the company, as a trial enterprise for value-added tax, secured tax refunds on export sales, sales of new products and advanced technology products, and discretionary sales tax refunds from the government. The refunds, 116.17 million yuan in 1992 and 121.8 million yuan in 1993, were deducted from gross turnover. Since last year, Fotao has only received 14.74 million yuan in refunds for selling new and technology products, receiving no export sales tax refunds and discretionary refunds. In the first five months, it obtained 4.57 million yuan in refunds. Fotao is issuing 305 million shares to raise up to $509 million. The company will use one-third of the proceeds to repay its outstanding debt of 1.4 billion yuan.