People often say China's legislature doesn't matter. Tell that to foreign companies, which will see their tax bill rise by a collective US$5 billion after the nation's lawmakers gather next week.
When the National People's Congress kicks off its annual series of meetings on Monday, one law expected to be passed will unify corporate income tax rates at 25 percent, ending special privileges for foreigners.
"The current tax regimes are too complicated," Finance Minister Jin Renqing (金人慶) said recently.
"A unified tax code will create a taxation environment that favors fair competition among all ventures registered in China," he said.
Or that is the theory at least. Foreigners are cautiously waiting to see what the reality will be.
"The question is whether there will be all sorts of dispensations and cozy arrangements for Chinese enterprises," said a Western executive who asked not to be identified.
The new 25 percent tax rate means foreign enterprises which so far have been subject to a 15 percent income tax will have to pay a combined US$5.1 billion extra every year, according to official calculations.
Chinese companies, meanwhile, will pay US$16.8 billion less, since up until now they have been taxed at 33 percent.
No wonder, then, that Chinese executives such as Lu Honghua, general manager of Changchun Huaxin Food, a candy maker in northeast China, sees the measure as justice finally reigning supreme.
"For us domestic enterprises, the unification of the rates signals that all the enterprises have returned to the same starting point and that all market players are put on an equal footing," Lu told state media.
One often-cited reason for the unified tax rate is China's entry five years ago into the WTO, which says foreigners and locals must be treated equally.
Just as important, however, are changes in the requirements of the Chinese economy now compared with when the dual tax regime was devised.
China is no longer in desperate need of funds. It has more than half a million foreign enterprises, received more than US$60 billion in investment last year, and can start paying attention to other concerns as well.
For instance, China favors more investment in high technology, and sources say the new law will provide a preferential 15 percent rate for companies in that sector.
Companies which currently are entitled to income tax rates of between 15 percent and 24 percent will have five years to adjust.
"We've got similar arrangements in our own countries, but the privilege cannot last forever, and all enterprises know that," said Jorge Mora, China chief executive of French firm Veolia Environment, a provider of environmental services.
"We've benefited from access to these privileges, but we aren't going to stir up a big fuss because we lose this special treatment," he said.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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