China to unify income tax on domestic, foreign firms

Byzjx

Updated Fri, 11 Mar 2005 00:00:00 GMT

China's taxation administration will speed up reform to levy unified income tax on domestic and overseas-funded firms, said top tax official Xie Xuren at a press conference on the sidelines of the ongoing annual parliament session at the Great Hall of the People in Beijing. 

    China's top legislature, the National People's Congress, has listed the Law on Enterprises' Income Tax in its lawmaking plan for 2005.

    NPC deputy Cheng Faguang revealed earlier Wednesday that China might unify the income tax rates in 2008.

    Xie said his administration has carried out in-depth research on the unification with other departments concerned, and would speed up reform of the taxation systems in line with the legislative procedure.

    The actual income tax rate has remained at 14 percent for overseas-funded businesses, much lower than the 24 percent for domestic firms, since China formulated the preferential policy for overseas-funded enterprises in mid-1980s in a bid to lure foreign investment.

    Experts and local companies have complained the policy does notcomply with WTO principles and as a kind of discrimination against domestic firms, it also results in reduction of China's tax revenues.

    Personal income tax base line     

    While answering the question about personal income tax, Xie said it was necessary to raise the base line of personal income tax to a certain extent because of increased urban workers' salary income and residents' expenditures.

    The Ministry of Finance and the State Administration of Taxation have drafted a preliminary plan for the raise and would submit it to the State Council, or the central government, for deliberation, he said.

    The State Council then will submit it to the national legislature for further deliberation and, once the bill was approved, the related clauses of the personal income tax law will be amended, said Xie.

    According to China's tax law, Chinese citizens are entitled to pay personal income tax for their salary and ten other kinds of incomes. In case of personal income tax, the part of their monthly income exceeding the 800-yuan (97 US dollar) mark has been taxed ever since the tax was introduced in 1980. Some localities have adjusted the norms for taxation but a unified national adjustment is still available yet.

    If the government fails for long to raise the 800-yuan mark when the people earn much more, argue experts, the role of taxation as a lever to adjust the income gap will be negligible.   

    State-owned commercial banks reforms

    China is capable of financing reforms of its state-owned commercial banks, said Finance Minister Jin Renqing on Wednesday at the same press conference.

    Jin said the Finance Ministry has issued 270 billion yuan (32.5billion US dollars) of treasury bonds to boost the banking sector,and will probably finance the separation of an additional 1.4 trillion yuan (168 billion US dollars) of non-performing assets from state-owned banks.

    The finance department may also adopt preferential tax policies to support the banks' joint-stock reform, either by allowing the banks to dispose of some non-performing assets before tax payment, or returning to them some of the income tax proceeds. "Whatever measures to be taken depends on the future financial situation," he said.

    The Chinese government has spent 45 billion US dollars of its foreign exchange reserves to bolster the balance sheets of state-owned Bank of China (BOC) and China Construction Bank (CCB).

    Governor Zhou Xiaochuan of the People's Bank of China, or the central bank, said on Monday the share-offerings and listings of BOC and CCB are "not too far away." 

    Prudent fiscal policy suits demand for macro-control ¡¡¡¡

    On the issue concerning fiscal policy, Jin said China's decision to shift its fiscal policy from "proactive" to "prudent" this year was in line with the changes in the macroeconomic situation and suits the needs for macro-regulation.

    Following the prudent fiscal policy, the government would cut this year's fiscal deficit by 19.8 billion yuan (2.4 billion dollars) to 300 billion yuan (36.2 billion dollars, he said.

    Long-term treasury bonds to be issued this year would be 30 billion yuan (3.6 billion dollars) less than last year, continuinga dropping streak to stand at 80 billion yuan (9.7 billion dollars).

    Meanwhile, the share of fiscal deficit to the gross domestic product (GDP) would further shrink to an estimated 2 percent this year, 0.5 percentage points lower than last year, the minister said.

    The Finance Ministry would spend more T-bond proceeds to agriculture, science, education, culture, health and social security, while promoting tax reforms in the countryside and improving the export tax rebate system.

    Implementing the prudent fiscal policy also calls for intensified efforts to increase tax revenue and reduce financial expenditures, he added.

    Jin spoke highly of the proactive fiscal policy the government adopted since 1998 in the wake of the Asian financial crisis, saying a total of 910 billion yuan (110 billion US dollars) of long-term T-bonds were issued in the seven years, which contributed 1.5 to 2 personage points to China's economic growth and helped achieve a "soft landing" of the economy.

    Despite the achievements, some unhealthy and unstable factors have occurred in China's economic development, said Jin, pointing to the excessive and fast-increasing investment in some industries, the excessive increase of money supply and the huge amount of non-government investment.

    To follow the scientific concept of development, "we should boost the development of agriculture, science, education, culture and health, social insurance and other industries," said the minister.  

    Fuel tax    

    Commenting on the fuel tax issue, Jin Renqing said the government is determined to levy fuel tax but needs to find an "opportune time."

    The launch of fuel tax would help cut consumption of gasoline and diesel oil and preserve the environment, Jin said.

    "We already put in place plans to replace road tolls with the fuel tax several years ago," he said.

    However, the minister explained, it's not the right time to roll out the fuel tax now because China still needs to consider the price factor.

    To maintain a stable price, "we need further study on how to balance the interests of various social groups," said the minister.

    He said it's also unwise to roll out the fuel tax when oil price is soaring on the international market.

    International oil price has jumped from 20 US dollars per barrel to top 45 US dollars, or the highest of 60 US dollars.