Starting from December this year, the system of different treatment for foreign and domestic enterprises in paying urban maintenance and construction tax and education surcharge which has been in force for over 20 years will change. The Ministry of Finance (MOF) issued a circular lately saying that starting from 1 December 2010 both domestic and foreign-invested enterprises (FIEs) will be levied the urban maintenance and construction tax and education surcharge. This move signifies the unification of tax system for domestic enterprises and FIEs in China.

"A tax system offering different treatment to foreign and domestic enterprises played an important role in attracting foreign investment and introducing advanced technology from abroad in the early days of reform and opening up," said a responsible person of MOF. However, as China's reform and opening up continue to deepen, such a tax system is increasingly seen as a barrier to fair competition in a market economy. Hence, unification of the tax system for different types of enterprises has become a prerequisite in evening out tax burden and promoting fair competition.

Experts pointed out that since 2009, in order to counter the global financial crisis, China has introduced proactive fiscal policies, which include a series of structural tax reduction policies. Thus, unifying the urban maintenance and construction tax and education surcharge at this time will not impose a heavy tax burden on FIEs.