(iv)Taxable income

    Taxable income is the base to calculate the amount of the income tax payable by an enterprise. According to the Draft, the taxable income of an enterprise is the amount remaining from its gross income in a tax year after the excluded income, exempted income, deductions, and carry-forward loss in previous years are deducted (Article 5 of the Draft).

    (a) Income

    In the Draft, "gross income" is defined as "an enterprise's monetary and non-monetary income from various sources" (Article 6 of the Draft). "Excluded income" is defined as income from fiscal funds such as fiscal appropriations, administrative charges subject to fiscal administration and government funds (Article 7 of the Draft). "Exempted income" is defined as income from interests on treasury bonds and from equity investment such as dividends and bonus between eligible resident enterprises (Article 26 of the Draft). These definitions clarify the scope of the taxable income of an enterprise.

    (b)Deductions and taxation of assets

    Domestic enterprises and foreign-funded enterprises are now subject to different deduction of costs and other expenditures as far as income tax is concerned. For example, a limited deductible salary and wage system applies to the income tax of domestic enterprises while an actual salary and wage deduction system to the income tax of foreign-funded enterprises. The Draft unifies the policy for deducting various actual expenditures of enterprises, prescribes the standards for deducting expenditures for public welfare donations (Article 9 of the Draft) and defines the scope of nondeductible expenditures (Article 10 of the Draft). It also makes unified provisions for the deduction of expenditures related to an enterprise's fixed assets, intangibles, long-term prepaid expenses, and investment assets and inventory (Articles 11 to 16 of the Draft).

    (v) Administration of tax collection

    The collection of enterprise income tax shall be administered in accordance with the provisions of the Law on the Administration of Tax Collection. However, there are some special requirements for administration of enterprise income tax, such as the place of payment and consolidated tax payment for branches of an enterprise. Supplementary provisions are made in the Draft to standardize the administration of enterprise income tax, make tax payment easier and reduce the cost for both taxpayers and tax administrators.

    (a) Methods of tax payment. The current practice is that domestic enterprises pay tax locally as independent economic accounting entities while the head offices of foreign-funded enterprises shall make consolidated tax payment for them. To unify the methods of tax payment and make tax payment easier, the Draft provides that a resident enterprise establishing operational entities without legal person status shall calculate and pay enterprise income tax on a consolidated basis (Article 50 of the Draft).

    (b) Special tax adjustment. Tax avoidance by some enterprises through various means is serious, and the struggle against tax avoidance is intense. Thus, on the basis of international practice, the Draft provides rules for preventing tax avoidance through transfer pricing among associated enterprises. It also provides general anti-avoidance rules and articles against thin capitalization and avoidance through tax havens. Moreover, it sets forth provisions for assessment procedures and collection of interest from settling tax arrears as provided for by the State Council. This will help guard against and prevent tax avoidance and safeguard the interests of the state (Chapter VI of the Draft).

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