Wang Zhaoguo, vice chairman of the Standing Committee of the National People's Congress (NPC), explains the draft property law during the second plenary meeting of the Fifth Session of the Tenth NPC in Beijing, March 8, 2007. (Xinhua/Wang Jianmin)  Photo Gallery >>>

Chinese Finance Minister Jin Renqing explains the draft enterprise income tax law during the second plenary meeting of the Fifth Session of the Tenth National People's Congress in the Great Hall of the People in Beijing, March 8, 2007. (Xinhua/Wang Jianmin) Photo Gallery >>>

    To prevent fraudulent acquisitions and mergers of state property, the draft strengthens the protection of state-owned property, stipulating that illegal possession, looting, illegal sharing, withholding or destruction of state property is prohibited.

    Those who cause loss of state property shall bear legal liability, according to a full text of the draft distributed to reporters at the session.

    Also tabled for deliberation was the draft enterprise income tax law, which suggests a unified income tax rate for domestic and foreign-funded companies at 25 percent.

    Delivering an explanation to the lawmakers, Finance Minister Jin Renqing said the law was drafted to "establish a scientific and standardized enterprises income tax system uniformly applicable to various type of enterprises and create an environment for fair competition".

    The income tax rate for enterprises in China is currently set at 33 percent, but tax waivers and incentives are granted to foreign-funded enterprises.

    Official estimates show that the average enterprise income tax on foreign-funded enterprises is 15 percent while that on the domestic enterprises is 25 percent, 10 percentage points higher than the former.

    Many Chinese economists, government officials and business leaders have openly criticized the dual income tax standards, which they said are unfair to domestic businesses that have to face tougher competition since China's accession to the World Trade Organization (WTO) in 2001.

    Jin said the proposed 25 percent of tax rate is mainly intended to ease the tax burden on domestic enterprises and keep a rise as little as possible for the foreign-funded enterprises.

    Transitional preferential measures will be given to allow the old enterprises, which had an income tax rate of 15 percent or 24 percent under the current tax laws, to enjoy a gradually increasing income tax rate within five years after the new tax law takes effect, according to the draft law.

    If the new tax law is implemented in 2008, China's domestic enterprise income tax will drop by 134 billion yuan while foreign-funded enterprise income tax will increase by 41 billion yuan. China's total fiscal revenues will drop by 93 billion yuan.

    Given the transitional measures to be applied to old enterprises, the decrease in fiscal revenues will be bigger. "But such decrease is still acceptable to Government finance," Jin said.

    Experts said that the tax change is actually a commitment to the World Trade Organization for equal treatment to enterprises, which can strengthen China's responsible role and make it more attractive to foreign investment.

    "Foreign companies have long enjoyed preferential tax treatment. We all knew this would not last forever," mayor of Rotterdam Ivo Opstelten told Xinhua earlier this week in a written interview.

    "With China's entry into the World Trade Organization, an equal marketplace should be developed," he said.

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