Businesses that have a large stake in China will find more pressure on their profits as China is moving toward a uniform tax law that will level the playing field for its domestic companies.
In the 1990s China enacted laws for the purpose of attracting foreign investment, offering about a 14% tax on corporate profits. The domestic Chinese companies have been paying around 24%. The new law will have foreign and domestic companies paying the same tax of 25% on corporate taxes. The law will go into effect in 2008. Management will need to start planning for the upcoming changes.
The impact upon businesses will be so diverse across so many industries that it's impossible to know how far reaching it will be. It will depend upon the industry and products or services offered.
Some companies that look to China primarily as a market alone could be hit harder by this change in taxes.
As we've been talking about lately on managersrealm concerning being a commodity company, that space could be possibly hit hard here. The Chinese middle-class is loyal to brands, and shouldn't abandon their commitment because of the approximate 11% increase. Whereas companies competing based upon price alone could be hurt tremendously by the tax increase.
It's another reason that companies and management need to be fully committed to differentiation, as it protects a company from the volatile world we live in.
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