Chinanews, Beijing, Feb. 27 – It is China's basic national policy to carry out opening-up and reform and the policy of attracting foreign investment. The two policies are also taken by many other countries in the world as common practices to augment their economic strength. While many other countries in the world offer various types of tax preferences in order to attract foreign investment, it is impossible for China to scrap its tax preferential policies for foreign firms because China also wants to attract as much foreign investment as it can. The new corporate tax scheme, which applies a unified tax for both domestic and foreign firms, aims to rationalize the tax preferential policies to both domestic and foreign firms and improve China’s general capabilities in utilizing foreign investment. The view that the unified tax system means that China has scrapped preferential tax policies for foreign firms is “groundless,” said Jia Kang, director of the Research Institute at the Ministry of Finance, as quoted by the People's Daily.

 

Jia highlighted several points related with the new unified tax scheme.

 

Firstly, after adopting the new unified tax scheme, the tax rate applied to domestic and foreign firms in China will be 25%. Such tax rate is still lower than the current average tax rate in the member states of the Organization for Economic Cooperation and Development (OECD), and also lower than the average tax rate in the neighboring countries and regions around China. So China will still remain attractive for foreign investment.

 

Secondly, China allows foreign firms to have a transitional period of shifting to the new tax scheme. During the period, foreign companies can still enjoy the tax preferential policies offered by the Chinese government. With this measure, it is expected that the negative impacts brought by the new tax system can be reduced to the minimum for the foreign firms in China.

 

Thirdly, China encourages foreign firms to make investment in industrial sectors related with clean production, energy conservation, pollution reduction and treatment. Foreign companies in these industrial sectors can still enjoy very attractive tax preferential policies. Although foreign companies will have to pay the same tax rate as domestic counterparts, those foreign firms that have grasped advanced technologies and key manufacturing skills might be more likely to enjoy tax preferential policies offered by the Chinese government for a long period of time to come.