391.7 billion yuan input for agriculture

The central government of China will invest 391.7 billion yuan in agriculture, rural areas and farmers this year, as it vows to develop modern agriculture and promote the building of a new countryside, said the premier.

"We will effectively shift the focus of state infrastructure development and development of social programs to the countryside, " said Wen.

Agriculture, as the base of the country's economy, remains weak, and it is now more difficult than ever to steadily increase grain production and keep rural incomes growing, Wen said.

He said this year's work related to agriculture, rural areas and farmers will focus on accelerating the development of modern agriculture and effectively promoting the building of a new socialist countryside.

China must strengthen government policy, funding, application of science and technology, and reform to develop modern agriculture and promote the building of a new countryside, the premier said.

Despite serious natural disasters, China last year saw a rich grain harvest with total output amounting to 497.45 billion kilograms, 13.44 billion kilograms more than the year before.

The per capita net income for the 900 million rural residents increased 7.4 percent to 3,587 yuan last year. Safe drinking water was made available to another 28.97 million rural people and the use of methane available to an additional 4.5 million rural families.

Corporate income tax

Wen said Monday that the timing and conditions are now ripe for unifying the enterprise income tax rates for domestic and overseas-funded enterprises to "level the playing field."

The National People's Congress will deliberate the draft law on the equalization of corporate income tax for both domestic and foreign companies.

The unified income tax rate will help foster a fairer, more regulated and transparent taxation system for all kinds of businesses, and help improve the quality and standard of China's utilization of foreign investment, Jiang Enzhu, spokesman for the annual session of National People's Congress (NPC), the national parliament, said Sunday.

"The draft law will neither cause massive influence on foreign companies or affect their enthusiasm of investing in China," Jiang said.

The draft suggests to unify the income tax rates for domestic and foreign companies at 25 percent, according to earlier reports.

The lawmaking process, initiated last December, aims to ease years of criticism that the original dual income-tax structure is unfair to domestic enterprises.

The income tax rate for Chinese companies is currently set at 33 percent, while their foreign counterparts, which benefit from tax waivers and incentives, pay an average of 15 percent. However, both actually pay less due to other flexible preferential policies.

Many people believe that such a policy handicaps domestic businesses which have to face tougher competition since China's accession to the World Trade Organization (WTO) in 2001.

The reform on corporate income tax marks the maturity of China' s socialist market economy, said Shi Yaobin, director of the taxation policy department under the Ministry of Finance.

"It does not intend to put restrictions on foreign companies nor to counteract their too small tax contributions before. The purpose is to create a fair environment for competition," Shi said.

Experts agree that the tax change is actually a commitment to the WTO for equal treatment to enterprises, which can only strengthen China's responsible role and make it more attractive to foreign investment.

Joseph Lee, a tax and business advisory partner of Ernst & Young Beijing, is sure that a ten-percent tax increase will not crush out the zest of foreign investment.

"What weighs in their decision is China's huge market potential. The appeals are not only confined to preferential tax policies," said Lee, who has provided 20 years of consulting service on taxes for multinationals.

Carlson Wagonlit Travel (CWT), the second largest travel management company in the world, has just declared an ambitious plan of expanding business in China. The past five years has witnessed its sales volume up by an annual rate of 34 percent, higher than its branches in other places.

"Tax rate does not top our concerns," said CWT President Hubert Joly, adding that what he cares most is how to raise the ration of Chinese companies among customers from the current two percent.

A research report from the World Bank analyzed that stable political situation, sound economic development, broad market, rich labor sources as well as increasingly upgraded business infrastructure and government service in China are the major factors attracting foreign investment.

Tax incentives are usually considered less important than transparent taxation and indiscriminate government policies, said the report.

Meanwhile, to offset the impact on foreign companies, the Ministry of Finance has promised it would allow a transitional period.

"The income tax rate will be gradually increased to the 25 percent during the period, and foreign enterprises can still enjoy tax breaks within a regulated time limit," said Shi Yaobin.

The current practice is new foreign investors can be exempted from income tax for two years and get a 50 percent cut for another three years.

Generous tax incentives have fueled foreign capital influx. China has been one of the world's top destinations for foreign direct investment, taking in 53.5 billion dollars in 2003, 60.6 billion dollars in 2004, and 60.3 billion dollars in 2006 in terms of the amount actually used.

Last year, China reported a record tax revenue of 3.76 trillion yuan (482 billion U.S. dollars), excluding tariffs, tax on farmland acquisition and tax on real estate contracts. Foreign- funded companies contributed 153.4 billion yuan (19.7 billion dollars), or four percent of the total.

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