By approved by the State Council, the Ministry of Finance and the National Taxation Bureau announced the preferential policy of corporation income tax; this is in order to encourage the development of software industry and IC industry. The Expropriation - Reimbursement policy of value-added tax will use the hand back tax on the research and development of software products and expanding reproduction, the government will not access upon enterprise income tax any more. However, during NPC & CPPCC, the deputies are still working on the derating tax for software enterprises.
The notification regulates: The tax of the software enterprises by Expropriation ¨C Reimbursement policy should be used to research and develop software products and expand the reproduction, this cannot be the income of enterprises and there is no enterprise income tax in this part; after cognizance, the new software enterprises in China will not pay the enterprise income tax in the first and second year since the profit year, and they will only pay half of the enterprise income tax in the third, fourth and fifth year. For the key software enterprise in the national plan, if it hasn¡¯t enjoyed the tax exemptions preferential policy in this year, it will pay 90% of the enterprise income tax. For the integrated circuit enterprises who has more than 8 billion Yuan¡¯s investment or the IC linewidth is less than 0.25 um, they can get 15% discount of enterprise income tax, among these, if the enterprise has operated more than 15 years, since the profit year, it doesn¡¯t need to pay the enterprise income tax in the first five years, and get half discount during the next five years.
Tax privilege is issued as a series of policies for China to encourage and support the development of software industry. In 2006, the operating income amount of China software and information service industry was 480 billion Yuan, but in one of the plan of software industry, it is said that till 2010, the scale of China software industry will reach 13 trillion Yuan, it seems that it still has a long way to go. China always wants to be a software giant, but compared to the developed countries, the scale of China software industry is still small. In 2006, the software income of the United States is 5.4 times of China, and the EU income is 4 times of China, the software services outsourcing income of India is 5.2 times of China.
In order to promote the development of software and integrated circuit industry, as well as enhance the innovation capability and international competitiveness of information industry, China had issued policies in 2000 to encourage establishing software enterprises in China ¨C "Any software enterprises and integrated circuit enterprises in China can enjoy preferential policy no matter of the ownership". However, during NPC & CPPCC, the deputies are still working on the derating tax for software enterprises. Chinese software enterprises would like to keep 17% of expropriation and 14% of reimbursement policy. Hua Pinglan who is the chairman of Beijing software industrial association, said, "If the Expropriation ¨C Reimbursement policy is cancelled when the software industry is still young, the whole industry might loss, and most of the software enterprises will suffer devastating blows."
