The Rational Analysis Of The Effect Of The Preferential Tax Policy On Attracting FDI In China

With the acceleration of the globalization, the foreign direct investment (FDI) has reached to an unprecedented scale. In order to attract more FDI, each country starts to use varieties of ways to reach the goal. And our country has been adopted preferential tax policy as one of the important ways to attract FDI since 1980s. However, with the speeding up of the economy and the improving of the investment environment in China, many experts and scholars began to put forward some dissidence on preferential tax policy. How strong of the influence preferential tax policy brings on FDI becomes an problem that most people care for. And how important it is? Besides, the issuing of the new Enterprise Income Tax Law of the PRC makes this problem becoming the focus of our society again. In our minds, only acknowledging the effects of the policy objectively and properly can guide the way of attracting FDI in the new internal and external environment as well as achieving the goal of the change of caring quantity to quality during the process of using FDI.This paper is mainly discussing the problem of the effect of preferential tax policy on attracting FDI in China. On the basis of reviewing some of the related theories which clarifies the rationality and indispensability of implanting the preferential tax policy on FDI, we understand all kinds of impacts and some of the shortages of the policy by analyzing the actuality of it. At the same time, it rates the effects of the policy reasonably from the background of international tax policy. Then through the concrete analysis of Panel-Data model and tax sensitivity, it comes out the conclusion that the effect of the preferential tax policy shows a trend of weakening. In view of the conclusion, it proposes some related suggestions. On the one hand, we should adjust the policy itself combined with the new Enterprise Income Tax Law of the PRC. On the other hand, we must improve the non-tax factors combined with the Program of the Eleventh Five-year Plan of Developing in order to achieve the goal of bring the attraction of FDI of those non-tax factors fully into play as well as to achieving the goal of the change of caring quantity to quality during the process of using FDI.