The role of tax incentives on foreign capital inflows must be correctly evaluated and should neither be underestimated nor exaggerated. Although the national tax revenue will be reduced after the "two taxes are integrated into one", the cost of delaying the reform will be higher.
The problem of inconsistent income tax rates for domestic and foreign-funded enterprises is very unreasonable, and relevant departments are considering unifying them. In response to the objective trend of integrating the income taxes of domestic and foreign-funded enterprises (hereinafter referred to as "the two taxes into one"), the reporter discussed the current utilization of foreign capital, the tax levels of enterprises before and after the merger, and the impact of the "two taxes into one" on domestic and foreign-funded enterprises. Question, we interviewed Yang Chongchun, President of the China Taxation Society, and Professor Wang Guohua, Vice President of the Central University of Finance and Economics. Yang Chongchun: "Two taxes into one" is one of the main contents of the current series of tax system reforms. The new corporate income tax law after the merger should include the following main contents: unified implementation of the corporate income tax system to facilitate the identification of taxpayers and their tax obligations, so that Income tax covers the economic activities of the whole society; uniformly implements a medium to slightly low tax rate; unifies pre-tax deduction standards and standardizes the tax base; unifies tax preferential policies to form a new preferential tax policy with industrial preferential treatment as the mainstay and regional preferential treatment as the supplement. pattern.
Judging from the current situation, it is the best time to "unify two taxes into one": my country's economy is developing rapidly, reform and opening up are accelerating, and "two taxes into one" is facing a good macroeconomic environment . Macroeconomic data shows that our country's economy has now entered a new period of rapid growth. my country's tax revenue has achieved excess growth for four consecutive years. In 2001, 2002, 2003 and 2004, the growth rate of my country's tax revenue was 21.6%, 15.2%, 16% and 25.7% respectively, which was much higher than the growth rate of GDP in the same period. This is "Two taxes into one" provides ample room for operation. Wang Guohua: The "two taxes into one" plan is still being brewed and improved. Only when the plan is mature can it be submitted to the National People's Congress as a bill for deliberation and then promulgated and implemented. This year's National People's Congress did not consider this proposal, indicating that the plan is not yet mature. Therefore, there is currently no clear timetable, but in any case, the unification of the two taxes into one is the general trend. Because the practice of applying two sets of tax laws to domestic and foreign-funded enterprises is firstly inconsistent with the market rules of fair competition, and secondly it cannot fully reflect WTO principles. At present, the collection of income tax for foreign-funded enterprises follows the "Provisional Regulations of the People's Republic of China on Enterprise Income Tax" and the "Income Tax Law of Foreign-Invested Enterprises and Foreign Enterprises" respectively.
According to regulations, the nominal tax burden of foreign-funded enterprises in China is 33% as that of domestic-funded enterprises, but the actual tax burden of foreign-funded enterprises is much lower than that of domestic-funded enterprises. This is because foreign-funded enterprises also enjoy various tax benefits: for example, domestic-funded enterprises have taxable wages, while all wages of foreign-funded enterprises are outside the tax base of corporate income tax. This difference brings higher employment costs to foreign investors. advantages. The starting dates of tax obligations are different. Domestic-funded enterprises pay tax from the date of company registration, while foreign-funded enterprises pay tax from the date of profit. Differences in preferential treatment for special industries. If a production-oriented foreign-invested enterprise invests in infrastructure industries and has an operating period of more than 10 years, upon approval, it can enjoy the special preferential treatment of 50% tax reduction for another 5 years on the basis of "two years of exemption and three years of halving", while domestic-funded enterprises Does not have. Regarding reinvestment tax rebates, foreign investors can enjoy tax rebates if they convert profits into investments locally, while domestic investors basically do not enjoy this preferential policy. In the early days of reform and opening up, because our investment environment was relatively poor, it was basically reasonable to grant certain tax preferences to foreign investment. However, this kind of distorted tax system is rare around the world. Over time, this preference has become higher than that of foreign investment. The super-national treatment of domestic enterprises is not only detrimental to the standardization of the market economic order, but also leads to a large loss of tax revenue for the country. "China Science and Technology Wealth": The unification of the two taxes means that the income tax of domestic and foreign-funded enterprises will be unified in terms of tax base, tax rate and tax incentives. At present, people are most worried about whether the unified tax incentives will affect the enthusiasm of foreign investment. In the short term, domestic and foreign investment Will you consider withdrawing capital?
Yang Chongchun: This issue should be analyzed in detail. First of all, the role of tax incentives in enhancing a country's competitive advantage in attracting foreign investment is only a supporting factor, not a decisive factor. For example, Uruguay used to be the country with the lowest taxes on foreign-invested enterprises in the world, but it was not very attractive to foreign investment; while the United States, although it does not provide tax incentives to foreign-invested enterprises, has always been the country that attracts the most foreign direct investment in the world. one of the countries. Judging from the future trend, many favorable factors for attracting foreign investment in my country are constantly being optimized, the investment field is further expanded, potential consumer demand continues to grow, the soft and hard environment is significantly improved, the development momentum of the national economy is outstandingly strong in the world, and foreign businessmen will generally transfer manufacturing industries. Our country is regarded as the country with the strongest investment confidence. All this shows that our country's attraction to capital from multinational companies will only increase but not weaken.
Secondly, because many countries have not implemented tax sparing systems, most foreign investors have not directly benefited from preferential tax policies. Among the more than 80 countries that have signed tax treaties with my country, most countries have not implemented a tax sparing system, which means that most of the tax revenue that my country gives up by granting tax preferences to foreign-funded enterprises does not directly benefit foreign investors. Instead of benefiting from it, it was handed over to the governments of capital-exporting countries. Therefore, tax incentives have a certain impact on foreign investors, but they are not the main impact.
According to statistics from relevant departments, about 60% of foreign-invested enterprises currently investing in my country suffer losses. However, why foreign capital is still entering the Chinese market at a scale of tens of billions of dollars every year shows that China’s huge domestic market, Low-priced production factors and global market radiation are the fundamental reasons why foreign businessmen flock to this country. This mainly shows that foreign-funded enterprises invest in high-tech aspects such as product research and development in their home countries, and then use China's market, low-cost labor and preferential conditions for foreign businessmen to complete product processing in China and then sell them back to their home countries and global markets. In this way Keeping the most profitable links in China will, of course, show losses on China’s books. Therefore, the preferential corporate income tax is not the biggest attraction for foreign investors. Even if the preferential policies for foreign investors change, it will not affect the enthusiasm of foreign investors for investment.
Wang Guohua: It is worth mentioning that when designing the tax system, whether it is "comprehensive preferential treatment" or "specific preferential treatment" deserves serious consideration. At present, what we implement is actually the principle of "comprehensive preferential treatment". Regardless of the source of foreign investment and the direction of investment, the principle of "specific preferential treatment" must be considered after the "two taxes are integrated into one". As for some people's concerns that foreign capital may withdraw from investment in China after the merger, I don't think so. There are two reasons. First, once foreign capital withdraws, it is the foreign capital that will suffer losses first, because foreign capital has already paid a certain investment cost in China. Second, in the process of operating in China, foreign capital has transferred a large part of its capital through transfer prices. China's economy is facing the problems of excessive exports and excessive use of foreign capital, and the lack of competitive domestic microeconomic entities has become a bottleneck restricting the next development. Taking U.S. investment in China as an example, the capital cost of foreign investment in China is no more than 5%. Judging from the annual investment income of the U.S. in China, which is about 10%, the 5% difference is transferred to the United States. Finally, compared with neighboring countries, the 25% income tax rate is still attractive to foreign investment. According to a research report provided by KPMG accounting firm: in 2004, the average corporate income tax rate (including local tax rates) in 69 countries (regions) in the world was 31.6%. Among them, India is 35.9%, Japan is 42%, Malaysia is 28%, Pakistan is 35%, the Philippines is 32%, South Korea is 29.7%, Sri Lanka is 35%, Thailand is 30%, Vietnam is 28%, and Taiwan, China is 25%. , Ukraine is 25%.
The role of tax incentives on foreign capital inflows must be correctly evaluated and should neither be underestimated nor exaggerated. It should be affirmed that when starting to attract foreign investment, taking into account the risks faced by foreign investment entering the new environment, our country should implement the most eye-catching and direct preferential tax policies. However, my country's market economic environment is not what it used to be. Today, foreign businessmen value more the huge business opportunities brought by China's rapid economic growth. The merger of the two taxes will not affect foreign direct investment. The initial temptation can no longer be used to attract foreign investment. Otherwise, It will only reduce the quality and level of foreign investment. "China Science and Technology Wealth": Where is the current cost of using foreign investment in my country? How to improve the utilization efficiency of foreign capital by optimizing its utilization structure?
Wang Guohua: By 2003, China had become the seventh largest economy in the world. In 2004, China surpassed Italy to become the sixth largest economy. According to the goals set by the 16th National Congress of the Communist Party of China, China's economy will quadruple that of 2000 by 2020, reaching 4 trillion U.S. dollars based on current exchange rates. During this period, China will successively surpass the United Kingdom, France and Germany and become the largest economy in the world. The world's third largest economy. In this process, there is no doubt that the use of foreign capital will continue to help China achieve its set goals. However, there is indeed confusion about the use of foreign capital. On the one hand, China's domestic capital is idle, banks have huge deposits, and the savings of urban and rural residents in my country have exceeded 12 trillion yuan; on the other hand, there are a large number of preferential conditions to attract foreign capital. In 2004, my country's total utilization of foreign capital was US$64.072 billion, which was less than 5% of the savings deposits of urban and rural residents in my country. On the surface, the capital cost for enterprises to attract foreign investment is not high, but in fact the cost of attracting foreign investment is borne more by the government than by enterprises. Because the cost of attracting foreign investment is also reflected in taxes, land, environment, and other social costs. It is precisely because the government bears a large amount of social costs that it reduces the manufacturer costs of foreign-funded enterprises and thereby promotes GDP growth. In view of this, we must have an overall consideration in attracting foreign investment, and there must be overall arrangements for domestic and foreign investment. To attract foreign investment, we must first consider the demand for funds. After the demand is determined, low-cost capital should be selected. From the perspective of manufacturers, if the cost of domestic capital is low, use domestic capital, and if the cost of foreign capital is low, use foreign capital. From a government perspective, we must now try our best to mobilize our own capital. Domestic capital cannot be idle, and a huge balance of bank deposits is a huge idleness and waste of resources.
When attracting foreign investment, we should not only consider the scale, but also consider whether the structure is optimized. From the perspective of industries that attract foreign investment, the scale of investment in agriculture is very small and the proportion is very low; the proportion of investment in the secondary industry is relatively large, but it is too concentrated in small and medium-sized labor-intensive industries, general processing industries, and general industries. sex technology industry. However, there is not much investment in large-scale projects and basic industrial projects that can improve China's industrialization level and have high industrial correlation. In the tertiary industry, foreign investment is too concentrated in non-productive projects such as tourism, real estate, and public utilities, while the proportion of investment in transportation, postal and telecommunications industries, scientific research and comprehensive technical services is very low.
Under the premise that these conditions exist, it is necessary to consider adjusting the structure of foreign investment. We should not just look at the scale, but also at the efficiency of introduction. Special attention should be paid to the industry structure and which industries require foreign capital to enter. Special attention should be paid to investment issues, to adapt to the needs of industrial structure adjustment and optimization and upgrading, to optimize the industrial structure of foreign investment, to vigorously introduce foreign advanced technologies, key equipment and management methods, and to establish a policy adjustment mechanism aimed at upgrading the industrial structure. Encourage foreign investment in infrastructure, agriculture and high-tech industries from the aspects of finance, taxation, currency and credit, and restrict foreign investment in over-concentrated resource-based processing industries, real estate industries and excess industries based on backward technologies. At the same time, in view of the fact that foreign businessmen mainly invest in coastal areas, we strive to improve the investment environment in the mainland and promulgate some more preferential and practical investment policies based on the different characteristics of each region to attract foreign businessmen to invest. "China Science and Technology Wealth": What is the appropriate range for the tax rate after the merger, and what impact will it have on fiscal revenue and attracting foreign investment?
Yang Chongchun: After the merger, the tax base will be unified and the tax rate can be appropriately reduced. After comprehensive balancing, the nominal tax rate after the reform is more appropriate at 25%-26%. For old enterprises, it is necessary to give them a certain transition period. Judging from the experience of the tax reform in 1994, foreign businessmen were relatively satisfied with the reform measures at that time. After the implementation of the reform, the number of enterprises not only did not decrease, but also increased significantly.
In the short term, the merger may have a certain impact on tax revenue. However, from a development perspective, on the one hand, lowering the tax rate will reduce incentives for tax evasion, thus promoting the improvement of tax collection and administration efficiency. On the other hand, lowering the tax rate will help reduce the tax burden of enterprises, enhance the vitality and competitiveness of domestic-funded enterprises, and thereby expand the entire economy. , tax revenue will increase further.
Wang Guohua: This complicates the current corporate income tax system and brings about irregularities in collection and management. Some "fake foreign-invested enterprises" that are fake sole proprietorships and fake joint ventures have repeatedly appeared. "Fake foreign capital" refers to the capital of Chinese companies that "go abroad" through other channels and then return to China as foreign investors to invest and set up factories. "Fake foreign capital" is actually considered foreign capital, because according to Chinese laws, all funds from outside China are foreign capital. "Fake foreign capital" is the product of "tax arbitrage" practiced by domestic capital. It is the most sensitive foreign capital to tax rates. Once the tax rate rises, these capitals will withdraw.
After the merger of domestic and foreign-funded enterprises, the corporate income tax should choose a single proportional rate of about 25%. From an international perspective, a survey of corporate income tax rates in developed and developing countries abroad shows that they basically adopt a single proportional tax rate, and the total tax rate is within the range of 20%-25%. Compared with the normal range of international income tax of 20%-25%, the nominal tax rate of foreign-funded enterprises investing in China has reached this standard, but the actual tax rate has not yet reached this standard. However, the income tax rate of domestic-funded enterprises in China is higher than this proportion. After the merger, the income tax rate of foreign-funded enterprises All will be maintained at the 25% level, truly reflecting the laws of the market. "China Science and Technology Wealth": Is it necessary to give foreign-invested enterprises a certain transition period under the "two taxes into one" policy?
Yang Chongchun: After the "two taxes are unified", in order to prevent the actual tax level of foreign-funded enterprises from being too different from that before the merger, a transition period can be given to foreign-funded enterprises. For example, old foreign-funded enterprises can be allowed to continue their old tax rates. Tax rates and preferential tax policies will be implemented for a period of time, and "old methods for old enterprises and new methods for new enterprises" will be implemented. This gives foreign-funded enterprises a stable expectation, which is conducive to further strengthening foreign investment in China and is conducive to the stable growth of national fiscal revenue. We believe that a five-year transition period for foreign-invested enterprises should be sufficient. If the time is delayed too long, the positive effects of the "two taxes in one" will be greatly weakened.
Wang Guohua: During the set transition period, existing foreign-invested enterprises will be given transitional care. During the transition period, domestic and foreign investors will still enjoy the preferential policies promised by the Chinese government, thus ensuring the application of foreign investment. There are benefits, but domestic enterprises still cannot enjoy national treatment. In fact, the unfairness to domestic enterprises has not been eliminated. National treatment and equal treatment are not the same thing. National treatment refers to non-discrimination against foreign businessmen. Granting preferential treatment does not violate the principle of national treatment, but it violates the principle of market equality. Secondly, the transition period will bring policy loopholes to foreign-invested enterprises. For example, once the deadline is up, they may adopt new preventive measures to offset the adverse impact of policy changes.