People’s Daily: Unifying the Tax System of Domestic and Foreign Cooperations in Our Country
Date published: 22/10/2010
Source: People’s Daily
- To establish a tax system that promotes fair competition
- No significant influence on foreign companies due to the relatively low tax rate
According to the responsible officer from the Ministry of Finance and the State Administration of Taxation, the State Council issued a ‘Circular on the Regime of Unifying the Urban Maintenance and Construction Tax and the Education Surtax on Foreign cooperations and individuals by the State Council’ on October 18. It was decided to levy urban maintenance and construction tax and education surtax on foreign investment cooperations, foreign cooperations and foreign individuals (known as ‘foreign cooperations’ below). This is another significant move for the unification of the tax system of domestic and foreign cooperations in our nation.
According to the Ministry of Finance, the previous separate tax systems for domestic and foreign cooperations such as value-added tax, consumption tax, business tax, business income tax, tax on using urban land, vehicle and vessel tax, farmland occupation tax and property tax have successively been unified. Currently separate tax systems for domestic and foreign cooperations only exist in urban maintenance and construction tax and education surtax.
For the purpose of raising funds for the maintenance of city and country and expanding sources of local education funds, the State Council issued the ‘Provisional Regulations of the People’s Republic of China on Urban Maintenance and Construction Tax’ in 1985 and the ‘Provisional Regulations on Levying Education Surtax’ in 1986. Urban maintenance and construction tax and education surtax are levied based on the actual amount of tax payment of value-added tax, consumption tax and business tax (prior to 1994: product tax, value-added tax and business tax). Urban maintenance and construction tax is levied at three different rates of 7%, 5% and 1% based on the location of the taxpayer, that is, city, town and other areas.
According to the responsible officer, urban maintenance and construction tax and education surtax have been levied only on Chinese citizens and domestic cooperations for over 20 years since its introduction. This tax system with different treatments to domestic and foreign cooperations has played an important role in attracting foreign investment and introducing advanced foreign technologies. With the deepening of reform and openness, this tax system comes short of meeting the requirements of fair competition. In order to achieve fair tax burden and to encourage fair competition, it is inevitable to unify the tax system for all kinds of cooperations. As our economic society development and market economy continues to perfect, it is time to unify the urban maintenance and construction tax and the education surtax for domestic and foreign cooperations.
Liu Shangxi, deputy director of the Institute of Fiscal Science, Ministry of Finance, said that the unification of urban maintenance and construction tax and education surtax on domestic and foreign cooperations are executed given that the unification of the other important tax categories has been realized. The impact of tax burden on foreign cooperations is not significant as the two tax rates involved are relatively low. Foreign cooperations should have the bearing capacity.
According to the responsible officer, levying urban maintenance and construction tax and education surtax on foreign cooperations will not cause negative impacts on attracting foreign investment. Rather than to increase tax burden on foreign cooperations, the purpose of levying urban maintenance and construction tax and education surtax on foreign cooperations is to establish a tax system and an investment environment that promote fair competition. It is believed that this move will be understood and supported by foreign cooperations.