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Policy and Administration Reform and Future Plans

In recent years the corporate and individual income tax systems have been subject to numerous changes. This is part of

the governments attempt to modernise the taxation system by 2010, to bring it more into line with its neighbours, as well

to satisfy criteria for entry to regional and international bodies. However, the number of changes - not to mention

the lack of clarity in their application - has been a source of frustration for foreign investors. Foreign businesses are

sometimes accused of tax-dodging, although this is due more to the complex nature of the system than deliberate

avoidance. Increasing coherence in the tax system, in line with international norms, should emerge over the long term,

with the streamlining of the corporate tax regime being a priority.

While the government has been keen to underline the progress it has made, there remains a widely-held view that further

reform is necessary. In June 2006, parliamentarians debated the need for a law on tax management. It was envisaged

that such legislation would support the efficient use of tax, help prevent tax evasion and fraud and introduce an element of

equality into the system. In September 2008, the State Bank of and the Industrial and Commercial Bank

announced their plans to allocate US85 million to tax department for further modernisation of the taxation

system.

The governments reforms include

Reduction of the corporate tax rate from 28% to 25%. The plan was approved by the Assembly Standing

Committee in March 2008, and came into effect on 1 January 2009.

A new Personal Income Tax Law which came into force on 1 January 2009. The new progressive tax bands

reduced the top tax rate from 40% to 35%.