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New corporate tax structure should do wonders for the economy

By Xin Zhiming (China Daily)
Updated: 2007-03-20 08:53

The country's new unified corporate income tax for foreign and domestic enterprises has been hailed for its efforts to create fair competition between businesses, but its likely impact on economic growth is also worth noting.

China passed the law, which leveled the tax rate to 25 percent, on Friday.

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"It is a basic rule-setting move that will create a level playing field for all enterprises, a cornerstone principle of marketeconomics," Han Qi, a researcher at the University of International Business and Economics, told China Daily.

However, the effects of the law are not confined to promoting fair competition. The legislation marks a shift in the country's economic incentive strategy away from one based on taxation to one based on individual industries, Wang Xiaoguang, aBeijing-based senior economist, told China Daily.

For example, high-tech enterprises that are in line with State industrial policy are eligible for preferential tax treatment under the new law.

"This will have a positive impact on domestic technological innovation," said Wang.

Domestic firms may take advantage of their lower tax burden to spend more on developing new and competitive technologies, he added.

TheNational Development and Reform Commissionwill draft industry lists to implement the innovation article, he said.

Technological innovation has been in the spotlight in recent years as the country has focused on following a more sustainable path to economic development instead of relying heavily on investment.

And for foreign enterprises, the new law does not just mean having to pay slightly more taxes.