Local govts take tax breaks to extremes

According to the terms of a recent announcement from the State Council, local governments must strictly adhere to the country's current laws when they offer tax discounts to investors.

Many governments dangle tax breaks and other related incentives as a way to lure businesses, create jobs and bolster their local economies.

In China though, local authorities have been known to wield excessively accommodative tax deals against one another as they compete for investment and recognition.

Such tactics seem to be leaving their mark on the State's balance sheet. Indeed, from 2010 to 2011, tax revenue is said to have declined by more than 3 trillion yuan ($487.68 billion) due to preferential tax offers.

Such offers served China well during the early years of the reform and opening-up era by drawing much needed foreign investment into special economic regions. But China now is in a much different place than it was in decades gone by. Hefty corporate tax discounts are disrupting normal market functions and hurting the public's interests.

Relevant authorities need to consider how they can simultaneously attract investors and cultivate a stable market environment.