China’s Ministry of Finance has announced on its website that it will offer an exemption from business tax for offshore service outsourcing companies, in an apparent bid to win business from India and other countries.
The exemption, in place from July 1 2010 until December 31 2013, assists firms which specialize in information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO) in 21 Chinese cities.
The 21 cities are: Beijing, Tianjin, Dalian, Harbin, Daqing, Shanghai, Nanjing, Suzhou, Wuxi, Hangzhou, Hefei, Nanchang, Xiamen, Ji’nan, Wuhan, Changsha, Guangzhou, Shenzhen, Chongqing, Chengdu and Xi’an.
Xinhua news agency reported that companies already taxed since July 1 could expect a refund by the end of this year.
Currently, China ranks second worldwide, in the outsourcing market for such services, with India ranking first.
China’s revenue from these types of outsourcing services increased by more than 150 percent in 2009 to over $10 billion, according to data from the Ministry of Commerce.
Accounting firm KPMG said last month that China had already surpassed India as the number one destination for Asia-Pacific companies utilising outsourcing and shared services, after securing business worth around $20 billion.
The KPMG survey covered 280 senior company executives across Asia, and confirmed that China’s outsourcing and shared services are quickly escalating, and that China had won a significant market share over India and other Asian destinations.
Global Head, IT Advisory at KPMG China, Edge Zarrella, said “Though at the moment the country has still not reached the level of maturity seen in India, the growth of China’s outsourcing market is significant. Many Western companies may still see India as their location of choice, but for executives within Asia Pacific the message is clear; China is now leading the way.”
Craig Hill 
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