Home » Opinion » Chinese Views
Extra tax will not scare off foreign firms
Source: Xinhua |
December 3, 2010, Friday
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Print Edition
Print Edition
FOREIGN companies in China have to face a new reality - fewer tax incentives. Despite higher costs, many investors have recently said they could not afford to lose a lucrative market like China.
As of December 1, China begins to charge foreign companies two taxes, which helps finance local city maintenance, construction and schools. Domestic firms now pay these taxes. This means foreign companies will now have to pay equal taxes with their Chinese counterparts.
More than 30 years ago, China introduced the economic reform and opening-up policy after decades of economic stagnation.
In urgent need of foreign exchange and technology, the government put into place an array of favorable policies to attract foreign investment.
Among them were hefty and exclusive tax breaks for foreign investors. Now, however, as China has gradually shifted to a market economy, there are stronger calls for equal treatment of foreign and domestic firms.
In fact, China's legislature passed a law in 2007 to unify the corporate income tax rate for foreign and domestic companies at 25 percent. However, much complaining followed the new law. Some argued that the new policy was "unfriendly." On the other hand, others said they would learn to adapt to the new environment, as they pin greater hopes on China after they saw faster business growth in recent years in the world's fastest-growing major economy.
Higher costs
"We do feel the changing environment in China, as we are faced with higher costs from tax rates, labor wages and a stronger renminbi, said Takeshi Uragami, general manager of Panasonic Electronic Devices (Qingdao) Company, Ltd. Panasonic was among the first group of foreign companies to open in China in the early 1980s.
Before the corporate income tax rates were practically equalized in 2008, foreign firms were charged a 15 percent rate at the time, while domestic businesses paid 33 percent. "It is not surprising," said Yang Wonjun, general manager of Qingdao New Century Tool Co, Ltd, a South Korean-invested cutting tool manufacturer based in Qingdao, Shandong Province.
"Favorable policy is good, but we did not count on it being perpetual. We have prepared for the changes," he said. Unified tax rates are a standard practice in many countries, and is unstoppable in China, he added.
Although tax rates are no longer appealing, foreign investors said they would not leave China. Further, they would invest more in China, as they are confident that they would profit more even though they will pay more tax.
More investment
Data released by the Ministry of Commerce showed foreign direct investment rose 8.7 percent year on year in October to US$7.66 billion, the 15th consecutive monthly gain.
"At any rate, we can not resist the temptation of China, because it has such a strong economy with relatively cheap labor and a huge market - few countries have such advantages," Uragami said.
Yang said China's improved public services were also an important reason for his company to stay. "Over the past eight years of operation in China, we have seldom experienced power cuts, except during the catastrophic Wenchuan earthquake in 2008."
The company will triple its investment in China in 2011 and spending on equipment purchases will hit US$45 million. "Retreating from the huge Chinese market simply because of higher tax rates? It is not a wise move, indeed," he said.
Manila-based Metrobank is the largest bank in the Philippines. It is also the first foreign-invested bank to put its locally incorporated headquarter in Jiangsu Province since China further opened its domestic financial market in 2007.
"We managed to break even after only six months of operation. We will make a profit at the year-end. It is clear evidence that China has moved to create level playing fields for foreign companies," said Derek Cheung, President of Metrobank's China branch. "Chinese small businesses are thirsty for money, so they are our target customers. We plan to open 15 more local branches in the next three to five years in China."
As of December 1, China begins to charge foreign companies two taxes, which helps finance local city maintenance, construction and schools. Domestic firms now pay these taxes. This means foreign companies will now have to pay equal taxes with their Chinese counterparts.
More than 30 years ago, China introduced the economic reform and opening-up policy after decades of economic stagnation.
In urgent need of foreign exchange and technology, the government put into place an array of favorable policies to attract foreign investment.
Among them were hefty and exclusive tax breaks for foreign investors. Now, however, as China has gradually shifted to a market economy, there are stronger calls for equal treatment of foreign and domestic firms.
In fact, China's legislature passed a law in 2007 to unify the corporate income tax rate for foreign and domestic companies at 25 percent. However, much complaining followed the new law. Some argued that the new policy was "unfriendly." On the other hand, others said they would learn to adapt to the new environment, as they pin greater hopes on China after they saw faster business growth in recent years in the world's fastest-growing major economy.
Higher costs
"We do feel the changing environment in China, as we are faced with higher costs from tax rates, labor wages and a stronger renminbi, said Takeshi Uragami, general manager of Panasonic Electronic Devices (Qingdao) Company, Ltd. Panasonic was among the first group of foreign companies to open in China in the early 1980s.
Before the corporate income tax rates were practically equalized in 2008, foreign firms were charged a 15 percent rate at the time, while domestic businesses paid 33 percent. "It is not surprising," said Yang Wonjun, general manager of Qingdao New Century Tool Co, Ltd, a South Korean-invested cutting tool manufacturer based in Qingdao, Shandong Province.
"Favorable policy is good, but we did not count on it being perpetual. We have prepared for the changes," he said. Unified tax rates are a standard practice in many countries, and is unstoppable in China, he added.
Although tax rates are no longer appealing, foreign investors said they would not leave China. Further, they would invest more in China, as they are confident that they would profit more even though they will pay more tax.
More investment
Data released by the Ministry of Commerce showed foreign direct investment rose 8.7 percent year on year in October to US$7.66 billion, the 15th consecutive monthly gain.
"At any rate, we can not resist the temptation of China, because it has such a strong economy with relatively cheap labor and a huge market - few countries have such advantages," Uragami said.
Yang said China's improved public services were also an important reason for his company to stay. "Over the past eight years of operation in China, we have seldom experienced power cuts, except during the catastrophic Wenchuan earthquake in 2008."
The company will triple its investment in China in 2011 and spending on equipment purchases will hit US$45 million. "Retreating from the huge Chinese market simply because of higher tax rates? It is not a wise move, indeed," he said.
Manila-based Metrobank is the largest bank in the Philippines. It is also the first foreign-invested bank to put its locally incorporated headquarter in Jiangsu Province since China further opened its domestic financial market in 2007.
"We managed to break even after only six months of operation. We will make a profit at the year-end. It is clear evidence that China has moved to create level playing fields for foreign companies," said Derek Cheung, President of Metrobank's China branch. "Chinese small businesses are thirsty for money, so they are our target customers. We plan to open 15 more local branches in the next three to five years in China."
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