Fair taxes for foreign companies
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As a matter of fact, the new taxation will not add much to the costs of foreign enterprises. In 2009, the city maintenance and construction tax totaled 154.41 billion yuan ($23.23 billion), only 2.59 percent of the country's tax revenue. As for education-supporting tax, it totaled just 65.08 billion yuan in 2008. Viewed in this light, the two taxes make up only a small proportion of the country's tax revenue and therefore will not impose a heavy tax burden on foreign enterprises.
It is true that the new taxation means foreign companies will now have to bear extra charges, but these will vary from one company to another. For most foreign-funded companies, the effect will be rather limited, as the two taxes in question are actually surcharges based on the total amount of consumer tax, value-added tax and other tax items the companies pay. Even for small-sized companies, it is unlikely that any of them will be forced out of the China market simply because of surcharges that represent a small slice of their profits.
The key factor deciding the fate of a company lies in its competitiveness. For those uncompetitive companies that are already being marginalized, the situation will definitely be aggravated by the new taxes.
The fundamental purpose of levying the taxes is for the provision of public services. The city maintenance and construction tax as well as the education-supporting tax are aimed at improving public services. In the mid-1980s, the State Council, China's cabinet, published the regulations about these two taxes and since then, domestic enterprises have been paying them.
Foreign companies nowadays enjoy the public services provided by governments at all levels, just as domestic companies do, so they should no longer be exempt from the city maintenance and construction tax and the education-supporting tax.
The improvement of public services in the Chinese mainland has reduced the operation and production costs of foreign enterprises. As the provider of public services, the Chinese government has more than enough reasons to impose on the service beneficiaries the city maintenance and construction tax as well as the education-supporting tax.
The author is a researcher at the Institute of Finance and Trade Economy of China Academy of Social Sciences.
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