'CHINA SAYS FOREIGNERS must pay much higher taxes from next year.'
Headlines such as this one on Tuesday morning probably caused many foreign executives to choke on their breakfasts and make emergency phone calls to their joint-venture contract lawyers.
It has long been known that China's 33 per cent local corporate tax rate and the 15 per cent foreign companies operating in special zones paid would eventually be merged. But when, at what rate and under what conditions?
Finance Minister Xiang Huaicheng filled in one of the blanks when he told Monday's Economic Daily that 'income taxes for foreign-funded and domestic firms will be unified next year'. It was the first time a specific time-table had been given for tax unification.
With so little additional information it was easy for investors to conjure up the worst-case scenario - a sharp rise in tax just six months from now that could threaten to make a nonsense of their carefully calculated return schedules and even render investments unviable.
This nightmare, however, is unlikely to materialise. Beijing is loath to spook foreign investors, who now contribute about US$40 billion to the economy each year.
If already extended concessions were revoked retroactively it could provoke a widespread investor backlash and threaten future inflows of foreign investment.
