First, we will increase investment in science and technology. Allocations in the central budget for expenditures in science and technology in 2007 total 88.121 billion yuan, a 20.1% increase over 2006. We will improve the structure of central government investment in science and technology to further increase support for nonprofit research institutes and deepen management reform. We will support operation of major science and technology programs and promote the development of regional innovation systems that take advantage of local characteristics and strengths.

Second, we will increase the capacity of enterprises for independent innovation. We are making full use of tax policy and rearranging funds to encourage and guide enterprises to increase investment in R&D work. We are promoting protection of intellectual property rights. We are encouraging venture capital to invest in small and medium-sized new- and high-technology enterprises. We are supporting domestic R&D work and production for core key technologies and major equipment. We are promoting the development of a new mechanism that organically integrates production, education and research. Finally, we are strengthening the function of government procurement policy in supporting independent innovation.

Third, we are promoting steady progress in trials for the reform of the compensation system for the use of natural resources and for damage to the environment. We are improving the trial reform of the compensation system for the use of coal resources. As part of the effort to work out a trans-provincial system of compensation for ecological damage to basin areas, we have selected the electricity industry and the Taihu Lake basin for a trial of a compensation and trading system for the right to release pollutants. We are increasing funding for ecological improvement and environmental protection and will be working out and implementing corresponding fiscal and tax policies to encourage the recycling of discarded materials and the development of new, alternative, and renewable energy resources. In addition, we will be improving the policy on compensation fees for the mining of mineral resources and the creation of pollution and accelerating development of a sound system of fiscal and tax policies to encourage conservation of energy and resources and protection of the environment.

Fourth, we will improve the policy on export tax rebates and tariffs. We will consolidate the results of the reform of the export tax rebate mechanism and work out and implement a tax policy to encourage the import of resources and goods needed for technological innovation and control the export of products whose production is high in energy consumption or is highly polluting. We will support enterprises in increasing their ability to comply with international trade norms.

7. We will actively help in the reform to combine the two laws on corporate income tax to further improve the socialist market economy. We need to make more effective use of the role of fiscal and tax systems in regulating the national economy, in promoting economic restructuring and in ensuring sustainable development.

First, we will actively work on legislation to combine the two laws on corporate income tax, one for domestic enterprises and one for overseas-funded enterprises. We will be working out regulations for implementing the Law on Corporate Income Tax and formulating corresponding support policies and measures to ensure smooth progress in implementing the law, promote fair competition among enterprises, allow Chinese enterprises to grow bigger and stronger, expand domestic demand and promote sustainable economic development.

Second, we will make steady progress in the reform of other taxes. We will lose no time in working out a specific plan and support measures for fully implementing the VAT reform. We will be introducing and implementing a new tax system for resources. We will strive to complete formulation and begin implementation of a new tax for the use of farmland for nonagricultural purposes. We will work out an implementation plan for levying tax on property. We will soon improve the plan for reforming the fuel tax and begin implementation when conditions are right. We will work out revisions to the stamp tax. We will constantly work to improve policies and measures related to the regulation of tax on real estate.

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