Weaken The Effects Of Preferential Tax Policies Of China's Fdi Inflow

With economy globalization becoming the trend of era, tax policyhas had more important influence upon foreign direct investment thanbefore. After more than two decades development, China has achievedgreat success in using foreign capital. Tax policy has played animportant role in this course, however, it also has produced side effecton the national economy. The unfair current tax preference policyimproved the regional polarization, caused the loss of the tax revenue.The important thing is it was unfavorable to domestic enterprise'sindustry upgrading and competitiveness.These problems cause moreand more demand of unifying the income tax of foreign and homeenterprises. After the several hot discussions, the combined enterprisesincome tax law eventually has been passed in the Congress at 16thMarch 2007. The new enterprises income tax law would be adaptedfrom 1st Jan 2008.Though the new law has been formally introduced, thecontroversy about the "merger of the two law" in the academic andpolitical as well as commercial circles has not stopped. Since themultinational corporation submitted the joint letter and put the debateinto it's climax, the focus of debate gradually becomes that: Would thereform of the enterprise income tax affect the inflow of foreign capital?Should the law be changed? What kind of role in economicdevelopment would the new law play? What is the inadequacy of thenew law? To solve these problems, the author analyses the effect ofour existing preferential taxation policy on China's FDI inflows, andbalances the advantage and shortage of the policy, then put forward thecorresponding solutions.The thesis has five parts. The first of all is instruction, whichintroduce the backward and purpose of research. The chapter 1explains the definition and the categories of FDI, and introduces the research status inside and outside China. Then put forward the newresearch measures and viewpoint of the paper. The chapter2recommends the basic theory of FDI.In chapter 3, China's FDI and corresponding preferential taxpolicies are divided into several stages. By the analysis of the stages,especially the present one, we find out the tendency of our FDIdevelopment. Finally, we compare the preferential tax policies ofdomestic with foreign-funded enterprises', and provide a theoreticalbasis for the reform of tax policy.In chapter 4, after the theoretical analysis and empirical analysis,we draw to the conclusion that the weakening effect tendency of thecurrent FDI tax policy. In addition, through the analysis of weakeningeffect, we find three main influence factors: the unfair preferential taxpolicies are the primary factor causing effects of weakening, and theimprovement of Chinese investment environment is the second factor,the change of the Flows-in direction of FDI is the third one.In chapter 5, it summarizes the results of previous studies, andconcludes that the reform of enterprise income tax law would notaffect FDI inflows but help creating a unified market environment.Finally, considering the three factors, the author proposes somemeasures to perfect the new law.