China's parliament, the National People's Congress, adopted the enterprise
income tax law Friday morning with 2,826 votes for and 37 against, and 22
abstentions, a key signal of a phase-in end of superior treatments to foreign
investors for two decades.
The 60-article law was ratified by the lawmakers as they concluded their
11.5-day annual full session at the Great Hall of the People in downtown
Beijing.
The voting result, announced by NPC Standing Committee Chairman Wu Bangguo,
was warmly applauded by lawmakers. Four legislators did not cast their votes.
The law is due to take effect on January 1, 2008.
Experts say the law marks an adjustment of China's policies toward foreign
investment in the current times.
The law, which sets unified income tax rate for domestic and foreign
companies at 25 percent, came after years of criticism that the original dual
income tax mechanism is unfair to domestic enterprises.
Currently, the actual average income tax burden on Chinese companies is 25
percent, while that on foreign enterprises is 15 percent. Many people think such
a policy forces domestic businesses to face tougher competition since China's
accession to the World Trade Organization (WTO) in 2001.
"It's a basic requirement of the WTO to create a fair environment for
competition, and the new unified income tax will, in a real sense, grant foreign
investment the same treatment as domestic businesses," said Miao Gengshu,
chairman of the China National Foreign Trade Transportation (Group) Corp.
Apart from increased income tax, foreign companies will also be wiped from
some other tax incentives, including pre-tax reduction and tax rebate for
re-investment, in the future, insiders say.
China is gradually taking back preferential policies toward overseas-funded
businesses, which has been levied the same tax as their domestic counterparts in
the use of urban land from January 1 this year.
