China to Unify Tax Policy for Foreign, Domestic Enterprises

For more than 20 years, foreign enterprises have been exempt from paying certain taxes in China. The policy of preferential treatment was introduced in an effort to attract foreign investment to the country in the years of China's 'opening up and reform'. But the government is now scraping the policy and unifying the tax structures for both foreign-funded and domestic enterprises. Sana Qadar has the details.

If there was a catch phrase to describe the change in tax rules, it would be "leveling the playing field".

Starting this month foreign-invested enterprises in China will be required to pay the Urban Maintenance Construction Tax, and Education Surcharge-something domestic companies already pay.

Dr. John Gong is a professor with the University of International Business and Economics in Beijing. He says in terms of actual costs, the tax increase won't have a major impact on foreign firms.

"Previously foreign companies are immune to these two taxes. So this adds about ten percent on top of value added tax foreign companies already pay. It’s actually a phased approach towards what's called 'leveling the playing' field for domestic and foreign companies"

The new rules comes in response to what Dr. Gong says has been a steady increase in domestic voices complaining about tax exemptions for foreign companies.

On its website, the State Administration of Taxation says the policy of preferential treatment was initially introduced as a way to attract foreign investment to China during its reform and opening up period. That treatment, it says, no longer contributes to fair competition in the market economy.

"We fully understand that evolution."

Dirk Moens is the Secretary General of The European Union Chamber of Commerce in China. He says his chamber agrees with the principal of the new rules, but has concerns about the wider business environment.

"To be honest the chamber stands for level playing field for equal access to the market for foreign and domestic companies. Obviously it's not enough. There is still what we call strategic industries like telecommunications where there is still a lot of restriction in terms of access for foreign invested companies. And in general the business environment should provide equal access to the market for both foreign and domestic companies."

Dr. John Gong, the economics professor, agrees the business playing field isn't quite level just yet, but believes the government is moving in the right direction.

"On one side foreign companies have been getting preferential treatment in this aspect. But on the other hand some domestic companies are also getting other kinds of preferential treatment from tax authorities, in terms of different kinds of rebate programs. I hope these policies can equally apply to foreign companies as well. But I think the significance is more of a symbolic stance that the government says from now on, we're going to provide a level playing field."

For CRI, I am Sana Qadar.