International dimensions of income taxation in China : a critique

The impact of China's open-door policy on its economic development is far-reαching. Foreign direct investment (FDI) brought about by this policy has been the driving force behind the country’s economic rφrms. The 1994 tax reform, a direct response to the demand of a socialist market economy, achieved initial success, but left much to be desired. An efficient, equal, and neutral tax system is desirable in an ideal tax environment. Chinα's numerous tαx incentives, available only to foreign investment enterprises (FIEs), have become a rising source of tax inequality, and have proved to be costly in terms of revenue foregone. The equity objective has gαined momentum as China is under pressure to boost revenues, through further tax reform, to fund the major infrastructure development programme. It is suggested that further tax reforms in China be grounded in the principles of unifying tax laws, equalizing the tax burden, simplifying the tax system, and improving the efficiency of tax collection and administration.