General Regulations of P. R. China XVI

CAI FA ZI [39] 1993.12.25

Article 1 The present Rules were formulated based on provisions of Article 18 of "Provisional Regulations of the People's Republic of China on Consumption Tax", (hereinafter referred to as "the Regulations").

Article 2 'Units' in Article 1 of the Regulations refers to State-owned enterprises, collectively owned enterprises, privately owned enterprises, joint stock enterprises, administrative units, institutions, military units, social organizations and other units.

'Individual' in Article 1 of the Regulations refers to individual business operators and other individuals.

'Within the borders of the People's Republic of China' in Article 1 of the Regulations means that the place of dispatch or location of consumer goods produced, contract processed or imported and which are subject to Consumption Tax (hereinafter referred to simply as 'taxable consumer goods' are within the borders.

Article 3 The specific scope of taxation for taxable consumer goods in Table of Consumption Tax Taxable Items and Tax Rates (Tax Amounts) attached to these Regulations shall be determined in accordance with "Explanatory Notes for Scope of Taxation of Consumption Tax" attached to these Detailed Rules.

Article 4 Taxpayers dealing in taxable consumer goods subject to different rates of tax' in Article3 of the Regulations refers to taxpayers who produce and sell taxable consumer goods with two or more applicable rates of tax.

Article 5 Taxable consumer goods produced by the taxpayer shall be subject to tax when sold' in Article 4 of the Regulations refers to the transfer, with compensation, of the proprietary rights of taxable consumer goods; that is, transfer of taxable consumer goods on the condition of receiving currency, goods, services or other economic benefits from the transferee.

Article 6 'Self-produced taxable goods for the taxpayer's own use in the continuous production of taxable consumer goods' in Article 4 of the Regulations refers to taxable consumer goods which are used as direct inputs for the production of finished taxable consumer goods and which constitute a material form of the final product.

'For other use' refers to the use of taxable consumer goods by taxpayers for the production of non-taxable consumer goods, in the construction process, administrative departments and non-producing institutions and the provision of labour services ; and taxable consumer goods used as donations, sponsorship , fund - raising, advertising, samples, staff welfare, awards, etc. .

Article 7 Contract processed taxable consumer goods' in Article 4 of the Regulations refers to processed taxable consumer goods for which the taxpayer provides raw materials and major materials and for which the contractor receives only processing fees and supplies part of the auxiliary materials for processing. Taxable consumer goods produced with raw materials provided by the contractor, processed by the contractor with raw materials bought by the contractor from the taxpayer, and produced by the contractor with raw materials bought under the name of the taxpayer, shall not be regarded as contract processed taxable consumer goods, but shall be regarded as sales of self-produced taxable consumer goods subject to Consumption Tax whether or not the taxpayer treats them as sales in their accounts.

Where contract processed taxable consumer goods are produced for direct sale, Consumption Tax will not be levied again.

Article 8 In accordance with provisions of Article 4 of the Regulations, the time when Consumption Tax liability arises is as follows:@@page@@

A. Where taxpayers sell taxable consumer goods, the time when tax liability arises is:

a. for taxpayers using the method of sales on credit and receiving payment by installments, the time when tax liability arises shall be the day of collection as stipulated in the sales contract ;

b. for taxpayers using the method of receiving payment in advance , the time when tax liability arises is the day on which the taxable consumer goods are delivered;

c. for taxpayers using the method of entrustment for collection or entrustment of banks for collection, the time when tax liability arises is the day when the goods are delivered and the procedure for entrusted collection is completed;

d. for taxpayers adopting other methods of settlement, the time when tax liability arises is the day when sales payment is received or evidence of right to collect payment is received.

B. Where taxpayers use self -produced taxable consumer goods, the time when tax liability arises is the day of transfer of the goods for use.

C. Where taxpayers contract taxable consumer goods out for processing, the time when tax liability arises is the day when the taxpayer receives the goods.

D. Where taxable consumer goods are imported, the time when tax liability arises is the day when the taxpayer declares the imports to Customs.

Article 9 "Sales volume" in Article 5 of the Regulations refers to the volume of taxable consumer goods which is specifically:

A. For the sale of taxable consumer goods, it is the sales volume of taxable consumer goods.

B. For self-produced taxable consumer goods for own use, it is the volume of the taxable consumer goods transferred for own use.

C. For contract processed taxable consumer goods, it is the volume of taxable consumer goods delivered back to the tax payer.

D. For imported taxable consumer goods, it is the tax assessable volume for import of taxable consumer goods certified by the Customs Bureau.

Article 10 Where tax payable of taxable consumer goods are calculated using the specific value method, the conversion standard of the measurement units shall be as follows:

A. beer 1 ton = 988 litres

B. yellow wine 1 ton = 962 litres

C. gasoline 1 ton = 1388 litres

D. diesel oil 1 ton = 1176 litres

Article 11 Following the regulations in Article 5 of the Regulations , where a taxpayer sells taxable consumer goods whose sales amount is calculated in foreign currency, he may convert the amount into Renminbi using a market foreign exchange rate which is either the rate on the day of sale or the rate on the first day of the month (in principle a median rate); the taxpayer shall choose in advance which conversion rate he wishes to use, but once he has chosen he may not change it for one year.@@page@@

Article 12 'Sales amount' in Article 6 of the Regulations does not include Value-Added Tax that shall be collected from the purchasers. If the amount of Value-Added Tax has not bee$ deducted from the sales amount of the taxable consumer goods, or if, because a Value-Added Tax Special Invoice is not issued by the taxpayer, the price and the amount of Value-Added Tax are collected together, it shall be converted into a sales amount which excludes Value-Added Tax for computing Consumption Tax. The conversion formula is as follows:

total sales of taxable consumer goods = sales amount including Value-Added Tax _ (1+ Value-Added Tax rate or Levy rate)

Article 13 If taxable consumer goods whose tax is computed using the ad valorem method are sold together with the packaging, the packaging shall be included in the taxable consumer goods sales amount when levying Consumption Tax, whether or not the packaging is priced separately,, and whether or not it is recorded in the accounts. If packaging is included with the products without a price, but with a deposit collected, such deposits shall not be included in the sales amount of taxable consumer goods when levying tax. However, deposits which are not refunded because the packaging is not returned within the specified time limit, or which are held for more than one year, shall be included in the sales amount and be subject to Consumption Tax according to the applicable rate.

Where packaging has been priced and sold along with the taxable consumer goods and a deposit is collected as well, the total amount shall be included in the sales amount of taxable consumer goods and is subject to Consumption Tax at the applicable rate, if the packaging is not returned to the taxpayer within the specified time limit.

Article 14 'Other charges' in Article 6 of the Regulations refers to other funds, fund raising charges, profits returned, subsidies, damages for breach of contract (interest on deferred payment), handling charges, packaging fees, contingency fees 9 quality charges, freight and loading charges 9 and charges of any other nature which are in addition to the price charged. However, the following amounts are not included:

A. A freight invoice is issued to the purchaser by a transport department.

B. The same invoice that was forwarded by the taxpayer to the purchaser.

All other charges, whether or not they are income of the taxpayer, shall be included in the sales amount when calculating tax payable.

Article 15 'The sales price of similar consumer goods' in Article 7 and 8 of the Regulations refers to the sales price of similar consumer goods sold in that month by taxpayers or withholding agents. If the sales price of similar consumer goods vary in different periods within the month, tax shall be calculated according to the sales volume on a weighted average. However, the sales of taxable consumer goods shall not be calculated under a weighted average if one of the following conditions apply:

A. The sales price is clearly low and without proper justification.

B. There is no sales price.

Where there are no sales or where sales have not been completed in that month, tax shall be paid according to the sales prices of similar consumer goods sold the previous month or in the most recent month.

Article 16 'Cost' in Article 7 of the Regulations refers to the production cost of taxable consumer goods.@@page@@

Article 17 'Profit' in Article 7 of the Regulations refers to profit calculated according to national average cost-plus-margin profit rate on taxable consumer goods. National average cost-plus-margin profit rate of taxable consumer goods shall be determined by the State Administration of Taxation.

Article 18 'Cost of materials' in Article 8 of the Regulations refers to the actual cost of processing materials provided by the contractor.

The taxpayer must truthfully indicate the cost of materials used in contract processed taxable consumer goods, either M the contract processing contract or in other forms. Where no cost of materials is provided, the local taxation authorities have the power to determine the cost of materials.

Article 19 'Processing fee' in Article 8 of the Regulation! refers to all fees which the taxpayer pays to the contractor for the processing of taxable consumer goods (including the actual cost of auxiliary materials paid on commission).

Article 20 'Custom dutiable value' in Article 9 of the Regulations refers to the Customs dutiable value determined by the Customs Bureau.

Article 21 In accordance with Article 10 of the Regulations, the power to determine the dutiable value of taxable consumer goods is stipulated as follows:

A. The dutiable value for Grade A cigarettes and white spirits made from grains shall be determined by the State Administration of Taxation.

B. The dutiable value of other taxable consumer goods shall be determined by local taxation authorities directly under the State Administration of Taxation.

C. The dutiable value of imported taxable consumer goods shall be determined by Customs Bureau.

Article 22 'Unless otherwise determined by State Council' in Article 11 of the Regulations refers to taxable consumer goods with State restrictions on export.

Article 23 Where Customs rejects the export of taxable consumer goods which have already been given tax exemption or where tax exemption is granted for the import of returned taxable consumer goods from overseas, the taxpayer declaring the exports shall duly report and repay the amount of Consumption Tax refunded to the local responsible taxation authorities.

Where tax exemptions have been granted for directly exported taxable consumer goods which are then rejected by Customs for export, and where exported taxable consumer goods are returned from overseas and tax exemption is granted at the time of export, the taxpayer may defer repayment of the tax, after approval by the local responsible taxation authorities, and repay the tax when the goods are transferred for domestic sale within the borders.

Article 24 Where taxable consumer goods sold by a taxpayer are returned by the purchaser because of quality or other reasons , the amount of Consumption Tax paid may be refunded after approval by local responsible taxation authorities.

Article 25 According to the provisions of Article 13 of the Regulations, if taxpayers sell taxable consumer goods they produced, in another county (city) or appoint an agent to sell in another county (city), the taxpayer shall pay Consumption Tax to taxation authorities where the accounting is done or where the taxpayer is located after the taxable consumer goods are sold.

If the taxpayer's head office and branch office are not in the same county (city), Consumption Tax shall be paid where the branch office produces the taxable consumer goods. However, after approval by the State Administration of Taxation and relevant local tax bureau, the Consumption Tax payable by the taxpayer for the branch office may be paid in a consolidated payment by the head office to the local responsible taxation authorities where the head office is located.

Article 26 The Detailed Rules shall be interpreted by the Ministry of Finance or by the State Administration of Taxation.

Article 27 The Detailed Rules take effect as of the date of their issue.

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