TAXES on foreign companies operating in China are going up. But determining when or by how much depends on who you listen to. Many officials have recently offered their views about what will happen as China brings its tax system into line with international standards. Adding to the confusion of the impending changes, a senior tax official yesterday denied earlier reports that China had set a specific date on which to begin charging duty on capital goods imported by foreign companies. An official of the Ministry of Foreign Trade and Economic Co-operation said last week that such preferential treatment would end on April 1 next year, but that foreign companies would be granted a two-year grace period. But deputy commissioner of the State Administration of Taxation, Xiang Huaicheng, said that was not true. 'That's news to me,' Mr Xiang said. 'The Chinese Government hasn't determined when to implement that policy.' In addition to taxing capital goods, China is expected eventually to eliminate tax breaks within special economic zones as it restructures its economy to meet conditions set by the World Trade Organisation (WTO). J.P Wang, a tax manager for Coopers & Lybrand, said: 'There are many rumours about the changes, but companies are largely in the dark about the details. 'Even having a close relationship with the government doesn't help - they don't tell us,' Ms Wang said. In some cases, public statements by different officials about the impending tax changes amount to a difference on emphasis. Deputy Foreign Trade Minister Sun Zhenyu said on Monday that foreign investors could still count on an income tax rate of 24 per cent in coastal areas and 15 per cent in special economic zones. The tax rate elsewhere is 33 per cent. However, Mr Xiang said yesterday that there was 'no doubt' that such preferential rates 'would be abolished'. But that would not happen before the end of next year, he said. 'When those preferential treatments are less important to investors, the conditions would be right to abolish them,' he said, without offering a specific date or saying at which rate the income taxes would be unified. Regardless of the timing, foreign companies clearly will have to pay higher taxes in China over the next few years than they have over the past decade. The impact on foreign investment is very difficult to predict or quantify. Government officials like Mr Sun and Mr Xiang said the impact would be minimal and that the overall investment climate remained positive. Foreign executives said that might be true for some companies but not others. 'I have already received worried queries from clients with respect to proposed investments,' Andrew Halper, a lawyer with Goodman, Phillips & Vineberg, said. 'Some are wondering whether these investments will continue to make sense.' 'A certain proportion of potential investors will say, 'No this doesn't look so great'. 'But others may accelerate their investments because they think they should get in before something worse happens,' Mr Halper said. 'If their long-term purpose is to get established in the China market, they are not going to allow themselves to be put off by these changes.'
