e-Taxation

Both countries, like other policymakers around the world, are trying to strike a balance between securing sufficient tax revenues and encouraging the growth of e-Commerce.

China

The Minister of Finance indicated in July 2000 that, although China wishes to foster the development of the Internet, the Chinese government is not willing to forfeit its right to tax e-Commerce transactions. e-Commerce clearly raises a number of issues in the areas of profits tax, VAT/consumption tax, business tax, customs duty, foreign exchange control and business regulation (Law & Lam, 2001).

China imposes import tariffs and import-related VAT on goods imported in general trade. Import-related consumption tax is also levied on certain goods.

• Tariffs: China does not impose levies on exports with the exception of a few types of raw materials and vital resources.
• VAT and consumption tax: China applies a zero tariff rate on exports with the exception of certain restricted or prohibited goods. In other words, there is no need to pay VAT or consumption tax on exports, and tariffs already paid will be rebated.

At present, the export rebate policy is applicable to FIEs under the "VAT exemption, deduction and rebate" system ("Guide to Doing Business," n.d.).

China has not released any general public reports nor taken any active measures on the taxation of e-business, although the State Administration of Taxation (SAT) has an internal committee looking at this particular issue. Certain tax incentives are, however, available for hi-tech companies, including Internet start-up companies. For example both Shenzhen and the Zhongquanchun area near Beijing are offering additional tax holiday incentives. Instead of the usual two years taxfree, three years 50% concessionally-taxed holiday period (2+3) available to most foreign investors, these companies may be eligible for an additional three to five years 50% concessionally taxed holiday period (Farrell & Yuen, 2000).