India's cabinet on Tuesday approved a new tax sharing scheme between the federal government and the states.

"The cabinet has approved in-principle the alternative scheme of devolution of central taxes recommended by the Tenth Finance Commission," Parliamentary Affairs Minister Pramod Mahajan told reporters after the cabinet meeting.

Under the new scheme the states would get 29 percent of the gross proceeds of all central taxes, except on a few specific levies.

Till now the states were entitled to a share only in the proceeds of personal income tax and excise duties which amounted to about 27 percent.

Since the implementation of the recommendations of the commission require some amendments in the constitution, a bill would be introduced in parliament in the budget session which begins later this month.

It said the federal government could now pursue tax reforms without the need to consider whether a tax is "shareable with the states or not".

India's total tax collection during the April 1999-January 2000 period amounted to 1,252.79 billion rupees, up from 1,071.36 billion rupees in the same period of the previous financial year.

The Tokyo Metropolitan Government on Monday approved the introduction of a special corporate tax formula for major commercial banks for five years starting fiscal 2000, officials said.

The formula will use gross operating profit as the basis for taxation, meaning profits from core banking operations plus costs, including personnel expenses.

The method would enable the local government to assess taxes even if a bank posts a net loss. The plan targets major banks with capital assets of over 5 trillion yen (US$46.3 billion).

The plan calls for applying the formula not only to banks headquartered in Tokyo, but also to those with branches here. Around 30 banks, including nine city banks, six trust banks and six regional banks, are expected to be subject to the new system.

The metropolitan government estimates annual tax revenue will increase by some 110 billion yen. It plans to set the standard tax rate at 3%, which is reduced to 2% for special corporations such as Norinchukin Bank.

(Nikkei).

China has decided to offer a reduced income tax rate of 15 percent for an additional three years to foreign-invested ventures in its central and western regions, the State Administration of Taxation said Tuesday.

The new policy, which has been in effect since January 1, is aimed at encouraging overseas businessmen to invest in these regions, where economic development lags behind that of the eastern coastal areas.

The regions include 19 provinces, autonomous regions and municipalities, namely, Shanxi, Inner Mongolia, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan, Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang.

Overseas-funded enterprises in China are entitled to a three-year tax reduction and exemption under the Chinese law. When the term expires, according to the new policy, overseas-invested enterprises in the central and western regions will enjoy another three years of preferential tax rate. The rate can be further reduced to 10 percent when an enterprise's annual export is confirmed to account for more than 70 percent of its annual output value.

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Copyright 2000: China Business Information Network (CBNet).

China's State Administration of Taxation has instructed local tax bureaus to treat endowments accepted by foreign-funded enterprises and foreign enterprises within Chinese territory as taxable business income, reported the January issue of Shewai Shuiwu (Foreign Taxation Monthly).

In accordance with circular No. 195, issued by the State Administration of Taxation on October 18, 1999, tax bureaus at the administrative levels of provinces, autonomous regions, municipalities directly under central government administration and cities designated for separate planning, and the taxation bureau of Shenzhen were notified that:

Non-currency endowments (including fixed assets, intangible assets and other goods) accepted by the enterprise shall be recorded in related asset accounts after an assessment based on reasonable prices. Meanwhile, the endowment shall be regarded as enterprise earnings during the year. After making up for losses incurred in previous years, it shall be subject to business income tax. If the amount remains relatively large after making up for losses and the enterprise finds it difficult to pay the tax in one lump sum, the enterprise may apply to the competent tax authorities and, once approved, incorporate it evenly into taxable earnings for no more than five consecutive years.

Currency endowments accepted by the enterprise shall be regarded as part of its earnings during the year, and thus subject to business income tax.

The outstanding expenses of the enterprise shall be regarded as part of the year's earnings, and thus subject to business income tax, if the creditor does not demand payment within two years.

Record receipts. Tax revenues in 1999 grew by 13.4% over the previous year to a record Rmb1.03trn (US$124bn). The tax bureau attributed the increase in receipts to the government's economic-stimulus policy and a crackdown on smuggling.

* FDI drop. Foreign direct investment fell 12% to US$40bn in 1999, according to a government newspaper. Currency worries and the after-effects of the Asian financial crisis were cited as factors in the decline.

* PetroChina listing. PetroChina, a slimmed-down unit of state-owned oil giant China National Petroleum Corp, plans a US$5bn-7bn stockmarket listing, the largest ever in China.

China may raise the corporate-tax rate for foreign banks later this year, a move that could hurt profitability for some foreign financial institutions, central bankers and government economists say.

The change is part of China's efforts to revamp rules and regulations as it prepares to join the World Trade Organization this year, a move that will lead to greater competition between foreign and domestic banks. Most foreign banks in China are taxed at half the rate levied on domestic banks - part of a policy Beijing introduced years ago to boost foreign investment. Local banks say this policy is unfair now that China has pledged to ease restrictions on foreign banks.

"When China enters the WTO, measures will have to be taken to level the playing field, and that includes equalizing the tax rate," says Chang Qing, an economics professor at Beijing University.

The tax issue and other regulatory matters will probably be discussed at the central bank's annual work meeting, which begins today. The annual gathering of China's top central bankers usually focuses on issues such as monetary policy. This year, broader issues relating to China's WTO entry are also on the agenda, officials say, including a plan to give domestic banks greater freedom to adjust their lending rates.

"There are a lot of regulatory issues that need to be dealt with this year," says a Chinese central banker. "Among the most important issues are changes in the regulatory system that will help promote fair competition between domestic and foreign financial banks."

While foreign banks hope China's entry into the WTO will mean the country will relax rules limiting their scope of business, the tax change may be the first effect they notice from China's pending entry. The majority of foreign banks are allowed to handle only foreign-currency operations, such as trade finance. The few foreign banks that have permission to handle local-currency, or yuan, accounts in China are allowed to operate in just two cities, Shanghai and Shenzhen.

To offset the restrictions, Beijing offers foreign banks a preferential tax rate of 15%, compared with 33% for domestic banks. Those banks with yuan operations are taxed at 33% in line with domestic banks. In addition, China also levies an operating tax of 8% on all revenue earned by foreign and domestic banks.

Taxation isn't the only issue under consideration. Other changes include giving state banks greater freedom in setting their own interest rates and allowing them to convert into shareholding entities, a move that eventually will lead to stockmarket listings for the banks.

China will cancel the taxation policy made during the inflation period to restrict investment and consumption in accordance with the current deflation trend, said director general of the State Administration of Taxation Jin Renqing at a recent press conference in Beijing.

Jin said that China had intensified taxation adjustments by raising export rebate rates, resuming the levy on bank interests, cutting the tax on fixed assets by 50% and giving preferential treatment to high-tech industries including the real estate and software sectors.

In 2000, China will continue to strengthen these efforts and will also stop levying regulatory tax on fixed assets investment.

Jin emphasized that China will grant national treatment to foreign-funded enterprises, but the timetable has not been fixed yet.

He said that national treatment is a WTO principle, but that different countries may adopt super-national treatment policies according to actual circumstances. At present, foreign-funded enterprises in China enjoy super-national treatment.

China has promised to cut tariffs from the current 17% to10%. In order to provide a fair competition environment, China will also adjust some domestic tax policies according to national treatment.

In general, Jin said, China would act in accordance with the principle of national treatment after its entry into the WTO; by adhering to the opening up policy and continuing to attract foreign investment, by keeping its promises to foreign businessmen and by instituting preferential policies for both domestic and overseas investors.

Jin admitted that China's accession to the WTO will bring many new problems to China's taxation. However, China will adjust taxation policy according to China's condition and the demand of WTO under the principle of adhering to opening up policy and attracting foreign investment.

(XIC).

(c) 2000 Asia Pulse Pte Limited

China will impose a long-expected fuel tax despite repeated delays - the most recent caused by a surge in world oil prices, officials and analysts said on Monday.

The China Daily Business Weekly said on Sunday that China had postponed the introduction of a controversial fuel tax due in part to an unexpected rise in international oil prices.

"Because of excessively high oil prices, we have decided to replace the fuel tax with a rural fee-cutting drive as a top priority on our fee-to-tax agenda," Cheng Faguang, vice-minister of the State Administration of Taxation, was quoted as saying.

China's oil sector, closely watching the tax debate, appears still unclear about when and how it will turn out.

The fuel tax was originally slated to go into effect early last year but was delayed to the start of this year.

In May, parliament rejected the fuel tax proposed by the Finance Ministry due to fears of protests by farmers who buy petrol for their tractors but do not use the highways.

Jia Kang, deputy director of the Finance Ministry's Institute of Fiscal Science, told Reuters the fuel tax plan would be implemented once the government finds "the right opportunity".

Beijing has been trying to replace random administrative fee charges with taxes to boost government revenues, curb corruption and cut costs that hurt businesses.

Mounting ad hoc fees have been draining revenues from central government, creating more difficulties for Beijing to narrow a swelling budget deficit which is expected to hit 180.3 billion yuan this year.

Off-budget revenues are equivalent to about 50 percent of government budgetary revenues, which account for around 13 percent of China's gross domestic product, analysts say.

State media have said the tax rate would be one yuan ($0.121) per litre of diesel and 1.2 yuan per litre of gasoline.

This would be much lower than the various administrative fees collected at present.

Opponents of the fuel tax argue it would push up domestic prices, hurting farmers and shipping firms as well as creating a fresh incentive for oil smuggling.

China's parliament, the National People's Congress, approved amendments to the Highway Law last October, paving the way for the government to levy the fuel tax.

The State Council, or cabinet, would impose the fuel tax once conditions are mature without refering it for the approval of the parliament, officials said.

The government would subsidize farmers and fishermen, according to state media.

($1 = 8.28 yuan)

French Prime Minister Lionel Jospin unveiled a 10-year national program Wednesday to curb emissions of greenhouse gases that includes a controversial new tax on energy-consuming industries.

But Jospin was keen to stress the government's new eco-tax won't raise the overall burden of taxation on industry, being offset by cuts in contributions companies make to France's generous social security system.

"Our competitiveness must be safeguarded," said the prime minister. "We have made sure that the significant lowering in carbom emission doesn't compromise the pursuit of strong economic growth."

The program, which sets out about a hundred separate measures, is designed to bring France in line with commitments made at last year's environment conference in the Japanese city of Kyoto.

Under the deal hammered out at Kyoto, France must reduce its greenhouse gas emissions by 10% over the next 10 years - difficult for a country that relies so heavily on nuclear power.

Jospin said the eco-tax would tax companies "according to their different sources of energy and according to their carbon content."

The new tax will be introduced next year at between FRF150 and FRF200 a metric ton of carbon produced, rising to FRF500 by 2010. It is a key part of financing for government plans to lower France's working week from 39 to 35 hours.

It involves basically increasing an existing general pollution tax and broadening it to cover a wider range of industries.

But the proposal has come under fire from industries like cement and glass-making, in which power consumption is high and chances of relocating production low.

Elsewhere in the program, there is a mixture of measures aimed at limiting both the production of greenhouse gases and demand for fossil fuels in major industrial sectors.

The measures proposed include encouraging electricity production by wind, favoring public transport, reducing VAT on new and renewable sources of energy, tree replanting and bringing taxes on diesel and petrol more into line.

Indonesia reportedly plans to revoke all value added tax (VAT) exemption facilities given tocompanies importing capital goods in order to increase the government's tax revenues.

The government has so far lifted such facilities given to independent power producers and importers of built-up cars for taxies and national cars.

Some facilities in the process of revocation include those given to integrated economic development areas (Kapets). The study will be carried out in February-March and the decision will be taken in April.

The similar measures will be imposed on facilities enjoyed by certain exporting companies (PETs) which were appointed by Bank Indonesia.

Indonesia said it would continue to offer tax incentives such as tax allowances to boost investment in the country.

The policy is in line with an agreement with other ASEAN member countries such as Malaysia which offers tax holidays of10% to 15%, President Wahid said in his budget speech Thursday.

Meanwhile, Laksamana Sukardi, the state minister for investment and state enterprises, said that tax holidays offered by the previous government for investment in certain areas would remain effective until March 31 this year.

"The new tax incentive called tax allowance or tax deduction would be effective in April," Laksamana told reporters. Under the new tax policy the government would still collect income tax to be installed for certain period.

He said the country needs to attract foreign investment to revive the real sector, therefore, incentives are necessary.