The government's plan to end tax benefits to foreign-invested firms and bring all companies under a single tax regime has attracted the attention of foreign-funded companies.

The China Business Times reported on Thursday that 54 firms, including ABB, BP, Siemens, Microsoft, Ericsson, Sony and Dell, will submit a report to the State Council Legislative Affairs Office, asking for a grace period of five to ten years before withdrawal of tax benefits.

Most of the companies, including Bayer, Sony, Siemens and BASF, said they were unable to confirm the report. However, a spokesperson from one of the 54, who declined to be named, admitted that such a request was in the process of being made.

The nominal income tax rate for domestic companies is 33 percent, while that for foreign-funded companies is 15 percent. Reports suggest that new tax rates may be set.

Domestic firms have had to bear too heavy a burden under the current regime, according to Ni Hongri, a senior researcher with the State Council Development Research Center.

"It means such firms are at a disadvantage when competing internationally," she said. "The government should unify the policies as soon as possible."

Director Xie Xuren of the State Administration of Taxation said at a press conference this week that the government will conduct an in-depth study on the tax system, but declined to give a timetable for unification.

Chinese economists and researchers have long called for integration of the two policies, saying the current system is unfair to domestic companies.

However, the Ministry of Finance, the State Administration of Taxation and the Ministry of Commerce reportedly hold differing views on the proposal.

Insiders say that the Ministry of Commerce is concerned that the reform will damage foreign investment and also the nation's exports.

During the first 11 months of last year, the government approved 39,291 foreign-funded companies, involving actual foreign investment of US$57.6 billion and making the country one of the premier destinations worldwide for foreign investment.

Meanwhile, foreign-funded companies account for 55 percent of the country's exports.

However, the Ministry of Finance stance is that in the spirit of China's WTO membership, the policies should be unified.

(China Daily January 14, 2005)