China to ease in tax rises for foreign companies

To avoid a backlash by foreign investors, China's vice-minister of finance, Lou Jiwei, said China woud not end its favorable tax treatment for foreign-funded companies before the second half of 2006 at the earliest, since any action on the issue cannot occur before the next National People's Congress in March 2006 and the required public notice would also add to the delay, the Financial Times reported. Lou said China still wants to equalize the income tax rates paid by foreign and domestic companies and the unified rate is expected to be 24-25%, which is between the 33% rate paid by domestic firms and the 14-15% rate paid by foreign companies. After the new rate takes effect, foreign companies will enjoy a transition period of "five years or perhaps a longer period" before the new rates apply, said Lou.