In order to unify the income tax burden on domestic and foreign-funded enterprises, the Draft integrates existing preferential income tax policies in the following five manners, taking into account the new situations of tax reform in various countries. Firstly, the Draft applies a preferential rate of 20 percent to eligible small low-profit enterprises and a preferential rate of 15 percent to hi-tech enterprises receiving priority support from the State (Article 28 of the Draft), and grants more tax preferential treatment to venture investment enterprises (Article 31 of the Draft) and to enterprises investing in environmental protection, energy and water conservation, work safety, and so on (Article 34 of the Draft). Secondly, the Draft retains the preferential tax policy on investment in agriculture, forestry, animal husbandry, fisheries and infrastructure construction (Article 27 of the Draft). Thirdly, the Draft replaces the policy of direct tax reduction or exemption with a substitute preferential policy for labor service enterprises, welfare enterprises and enterprises making comprehensive use of resources (Articles 30 and 33 of the Draft). Fourthly, transitional preferential tax treatment shall apply to newly-established hi-tech enterprises receiving priority support from the State and located in special zones prescribed by law to develop foreign economic cooperation and technological exchanges (i.e. special economic zones) or in the zone where the special policies for above-mentioned special zones are implemented with the approval of the State Council (i.e. the Pudong New Area in Shanghai). The income tax preferential policies for other State-defined enterprises the development of which are encouraged (i.e. enterprises the development of which are encouraged in the Western Development Region) will continue to be implemented (Article 57 of the Draft). Fifthly, some preferential policies are canceled. For example, the regular tax reduction and exemption for production-orientated foreign-funded enterprises as well as the 50 percent tax reduction for export-oriented foreign-funded enterprises are abolished. In addition, based on the opinions of some NPC deputies, it is provided in the Draft that enterprises may enjoy tax reduction and exemption treatment for their "income from environmental protection projects" and "income from eligible technology transfer" (Article 27 of the Draft), demonstrating the country's policy to encourage environmental protection and technological progress. Through the aforesaid integration, tax preferences provided for in the Draft mainly cover promotion of technological innovation and progress, encouragement of infrastructure construction, agricultural development, environmental protection and energy conservation, support to work safety, promotion of public welfare, support to disadvantaged groups, and special tax reduction and exemption for relief of natural disasters (Chapter IV of the Draft).

Hi-tech enterprises and small low-profit enterprises play a special role in the national economy. International practice indicates that it is necessary to apply favorable tax rates to hi-tech enterprises and small low-profit enterprises receiving priority support from the State. Given that the definition of a hi-tech enterprise or a small low-profit enterprise is an issue of policy implementation and the standards for such definition should be updated with the new developments and changes incorporated, it will be appropriate to set such criteria in the implementing regulations. Research and assessment on such criteria are being conducted by the relevant departments of the State Council.

(ii) Transitional measures for enterprises enjoying the existing statutory tax preferential treatment