Associated Press

Beijing, May 30:

China will eliminate tax breaks for companies backed by foreign investors beginning in 2007, requiring them to pay the same tax rates as Chinese competitors, a newspaper reported on Monday. The step will bring tax rates for foreign-financed companies in line with those charged to Chinese companies in an effort to “encourage fair competition among all businesses,” the China Daily said. It cited comments by Jia Kang, president of the finance ministry’s Institute of Fiscal Science, during a weekend conference. Foreign-backed companies currently pay tax at about half the 33 per cent rate paid by private Chinese firms, the China Daily said. It said those breaks cost the Chinese treasury about $50 billion a year in lost tax revenue. The policy has led to complaints by Chinese firms that they are at a financial disadvantage. “Our goal is to treat every investor equally, no matter if they are from home or abroad, private or state-owned,” Jia was quoted as saying. An earlier proposal to eliminate preferential taxes was postponed after complaints by foreign companies. Under the new plan, foreign-backed companies will get a five-year transition period, so that foreign investors who enter China before 2007 will still enjoy current tax rates through 2011, Jia said. He said firms that enter the Chinese market after 2007 will pay the full tax rates.