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Company tax unification in right direction

(Xinhua)
Updated: 2007-03-08 22:37

BEIJING -- Nobel laureate and US economist Joseph E. Stiglitz on Thursday commended China's unified corporate income tax rate as a positive move.

"China for a very long period of time has imposed a much lower corporate tax rates on foreign firms than on their Chinese counterparts. For me it makes no sense."

The visiting professor made the comments while addressing at the inauguration ceremony of a graduate institute of economics and finance in Beijing's prestigious Renmin University of China.

China's top legislature, the National People's Congress (NPC), on Thursday started examining a draft law aimed to introduce a unified income tax for domestic and foreign-funded enterprises at its ongoing annual session.

"The tax burden has put domestic companies at an unfavorable position," said Stiglitz.

In his speech titled "China's New Economic Growth Model", he voiced concern about Chinese local governments rushing in to encourage foreign investment, both to generate jobs and revenues for themselves.

In 2006, foreign-funded enterprises paid US$795 billion in all types of taxes, accounting for 21.12 percent of the total national tax revenue.

An estimate based on a national survey of company income tax sources shows the average tax burden on foreign-funded firms is 15 percent, compared with 25 percent for domestic companies.

The unified tax regime is likely to treat both domestic and foreign enterprises with an equal 25 percent tax rate.

Stiglitz argued it was unnecessary for China to offer preferential policies or tax breaks to attract foreign capital.

"With China's investment rate as high as it is, the issue today is not so much the level of investment, but its allocation."

Stiglitz also called for a boost in domestic consumption and technological innovation for sustainable economic development.

Having served as the economic adviser during the Clinton administration and chief economist and senior vice president of the World Bank, Stiglitz is now a professor at Columbia University in New York and chair of Columbia University's Committee on Global Thought.