Give us a break

Foreigners lose tax incentives

Give us a break

It’s official: after three decades of chasing foreign capital, China no longer feels it necessary to offer fiscal incentives to overseas firms. Starting next month, foreign businesses will lose the last vestiges of the tax breaks they once enjoyed as a matter of course. “China [now] has basically achieved a unified tax system for both domestic and foreign enterprises,” writes Century Weekly. “[The policy] promotes a fair tax burden and fair competition.”

The announcement from the Ministry of Finance and the State Administration of Taxation means that foreign-owned companies will soon be paying two taxes from which they were previously exempt: the education surcharge and the construction tax – which is meant to fund the building of various public facilities. It’s the end of an era for foreign firms, but it shouldn’t come as any surprise. China’s policymakers have gradually levelled the fiscal playing field, introducing many of the same taxes levied on local firms, such as the urban land use tax, as well as upping the corporate tax rate to comparable levels.

It won’t stop foreigners setting up shop in China, says Liu Kegu, a member of the China People’s Political Consultative Conference. He told the Shenzhen Special Zone Daily that China’s economic growth prospects and vast consumer market would still lure foreign direct investment, even without the old tax breaks.

Then again, the devil could end up being in the detail. For example, it’s thought that high-technology investment from overseas, something China’s leaders are still eager to attract, will continue to enjoy favourable tax exemptions.

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