Firms face tax hike in China

26 March 2007
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27 March 2007 | Paul Snell

A unified corporate tax rate is likely to be introduced in China next year.

The draft legislation was submitted this month to the National People's Congress. If passed, it will take effect on 1 January 2008.

The changes would mean an end to the varying rates of tax enjoyed by foreign companies. These are sometimes as low as 15 per cent, compared with the 33 per cent levied on domestic firms. The Chinese government said the new proposed single rate of 25 per cent could raise 43 billion yuan (£2.8 billion) in extra revenue.

Jin Renqing, the Chinese finance minister, told a press conference: "Compared with the rich profits of the overseas-funded companies, it will not be a big financial burden to them, nor will it affect their enthusiasm for investment in China."

There will be a five-year transition period for firms already in China and preferential rates of 15 per cent will continue for companies in high-tech sectors.

Humphrey Keenlyside, contributing editor at the China Britain Business Council, said many firms would be disadvantaged by raised rates, but the transition period was a sensible idea. "I don't think those sourcing in China will be significantly affected, but it will have an impact on those investing," he said. "But firms have known it was in the works. There will not be a big exodus of companies from China in the short-term."

Tax advisory firm Grant Thornton said unified tax rates would lead to "more robust anti-avoidance legislation".

SMmar2007

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