Taxation in China
Taxes provide the most important revenue source for the Government of the People's Republic of China. As the most important source of fiscal revenue, tax is a key economic player of macro-economic regulation, and greatly affects China's economic and social development. With the changes made since the 1994 tax reform, China has preliminarily set up a streamlined tax system geared to the socialist market economy.
Types of taxes
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Under the current tax system in China, there are 26 types of taxes, which, according to their nature and function, can be divided into the following 8 categories:
- Category of turnover taxes. It includes three kinds of taxes, namely, Value-Added Tax, Consumption Tax and Business Tax. The levy of these taxes are normally based on the volume of turnover or sales of the taxpayers in the manufacturing, circulation or service sectors.
- Category of income taxes. It includes Enterprise Income Tax (applicable to such domestic enterprises as state-owned enterprises, collectively-owned enterprises, private enterprises, joint operation enterprises and joint equity enterprises), Income Tax on Enterprises with Foreign Investment and Foreign Enterprises, and Individual Income Tax. These taxes are levied on the basis of the profits gained by producers or dealers, or the income earned by individuals.
- Category of resource taxes. It consists of Resource Tax and Urban and Township Land Use Tax. These taxes are applicable to the exploiters engaged in natural resource exploitation or to the users of urban and township land. These taxes reflect the chargeable use of state-owned natural resources, and aim to adjust the different profits derived by taxpayers who have access to different availability of natural resources.
- Category of taxes for special purposes. These taxes are City Maintenance and Construction Tax, Farmland Occupation Tax, Fixed Asset Investment Orientation Regulation Tax, Land Appreciation Tax, and Vehicle Acquisition Tax. These taxes are levied on specific items for special regulative purposes.
- Category of property taxes. It compasses House Property Tax, Urban Real Estate Tax, and Inheritance Tax (not yet levied).
- Category of behaviour taxes. It includes Vehicle and Vessel Usage Tax, Vehicle and Vessel Usage License Plate Tax, Stamp Tax, Deed Tax, Securities Exchange Tax (not yet levied), Slaughter Tax and Banquet Tax. These taxes are levied on specified behaviour.
- Category of agricultural taxes. The taxes belonging to this category are Agriculture Tax (including Agricultural Specialty Tax) and Animal Husbandry Tax which are levied on the enterprises, units and/or individuals receiving income from agriculture and animal husbandry activities.
- Category of customs duties. Customs duties are imposed on the goods and articles imported into and exported out of the territory of the People's Republic of China, including Excise Tax.
Tax legislation
State organs that have the authority to formulate tax laws or tax policy include the National People's Congress and its Standing Committee, the State Council, the Ministry of Finance, the State Administration of Taxation, the Tariff and Classification Committee of the State Council, and the General Administration of Customs.
Tax laws are enacted by the National People's Congress, e.g., the Individual Income Tax Law of the People's Republic of China; or enacted by the Standing Committee of the National People's Congress, e.g., the Tax Collection and Administration Law of the People's Republic of China.
The administrative regulations and rules concerning taxation are formulated by the State Council, e.g., the Detailed Rules for the Implementation of the Tax Collection and Administration Law of the People' s Republic of China, the Detailed Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, the Provisional Regulations of the People's Republic of China on Value Added Tax.
The departmental rules concerning taxation are formulated by the Ministry of Finance, the State Administration of Taxation, the Tariff and Classification Committee of the State Council, and the General Administration of Customs, e.g., the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Value Added Tax, the Provisional Measures for Voluntary Reporting of the Individual Income Tax.
The formulation of tax laws follow four steps: drafting, examination, voting and promulgation. The four steps for the formulation of tax administrative regulations and rules are: planning, drafting, verification and promulgation. The four steps mentioned above take place in accordance with laws, regulations and rules.
Besides, the laws of China stipulates that within the framework of the national tax laws and regulations, some local tax regulations and rules may be formulated by the People's Congress at the provincial level and its Standing Committee, the People's Congress of minority nationality autonomous prefectures and the People's Government at provincial level.
The following table summarises up the current tax laws, regulations and rules and relevant legislation in China.
Current Tax Legislation Table
| Legislation | Date of issue and issued by | Effective Date |
|---|---|---|
| 1.Provisional Regulations of the People's Republic of China on Value Added Tax Detailed Rules for Its Implementation | 13 Dec. 1993, by State Council 25 Dec. 1993, by Ministry of Finance | 1 Jan.,1994 1 Jan.,1994 |
| 2.Provisional Regulations of the People’s Republic of China on Consumption Tax Detailed Rules for Its Implementation | 13 Dec.1993, by State Council 25 Dec.1993, by Ministry of Finance | 1 Jan.,1994 1 Jan.,1994 |
| 3.Provisional Regulations of the People’s Republic of China on Business Tax Detailed Rules for Its Implementation | 13 Dec.1993, by State Council 25 Dec.1993, by Ministry of Finance | 1 Jan.,1994 1 Jan.,1994 |
| 4.Provisional Regulations of the People’s Republic of China on Enterprise Income Tax Detailed Rules for Its Implementation | 13 Dec.1993, by State Council 4 Feb.1994, by Ministry of Finance | 1 Jan.,1994 1 Jan.,1994 |
| 5. Income Tax Law of the People's Republic of China on Enterprises with Foreign Investment and Foreign Enterprises Detailed Rules for Its Implementation | 9 Apr.1991, by the Fourth Session of the 7th National People's Congress (NPC) 30 Jun.1991, by State Council | 1 Jul.,1991 1 Jul.,1991 |
| 6. Individual Income Tax Law of the People's Republic of China Regulations for Its Implementation | 10 Sep.1980 passed by the Third Session of the 5th National People’s Congress and revised and re- issued by the Fourth Session of the 8th NPC on 31 Oct.1993 28 Jan.1994, by State Council | 1 Jan.,1994 28 Jan.,1994 |
| 7.Provisional Regulations of the People’s Republic of China on Resource Tax Detailed Rules for Its Implementation | 25 Dec.1993, by State Council 30 Dec.1993, by Ministry of Finance | 1 Jan.,1994 1 Jan.,1994 |
| 8.Provisional Regulations of the People' s Republic of China on Urban and Township Land Use Tax Detailed Rules for Its Implementation | 27 Sep.1998, by State Council to be made by the People' s Government at Provincial Level | 1 Nov.,1998 |
| 9.Provisional Regulations of the People' s Republic of China on City Maintenance and Construction Tax Detailed Rules for Its Implementation | 8 Feb.1985, by State Council to be made by the People' s Government at Provincial Level | 1985 |
| 10.Provisional Regulations of the People’s Republic of China on Farmland Occupation Tax Detailed Rules for Its Implementation | 1 Apr.1987, by State Council to be made by the People’s Government at Provincial Level | 1 Apr.1987 |
| 11.Provisional Regulations of the People’s Republic of China on Fixed Assets Investment Orientation Regulation Tax Detailed Rules for Its Implementation | 16 Apr.1987, by State Council 18 Jun., 1991, by the SAT | 1991 1991 |
| 12.Provisional Regulations of the People' s Republic of China on Land Appreciation Tax Detailed Rules for Its Implementation | 13 Dec.1993, by State Council 27 Jan.1995, by Ministry of Finance | 1 Jan.,1994 27 Jan.,1995 |
| 13.Provisional Regulations of the People’s Republic of China on House Property Tax Detailed Rules for Its Implementation | 15 Sep.1986, by State Council to be made by People’s Governments at Provincial Level | 1 Oct.,1986 |
| 14. Provisional Regulations Governing Urban Real Estate Tax Detailed Rules for Its Implementation | 8 Aug.1951, by the Central People’s Government Administration Council to be made by People’s Governments at Provincial Level | 8 Aug.,1951 |
| 15. Inheritance Tax (to be legislated) | ||
| 16.Provisional Regulations of the People's Republic of China on Vehicle and Vessel Usage Tax Detailed Rules for Implementation | 15 Sep., 1986, by State Council to be made by People ' s Governments at Provincial Level | 1 Oct.,1986 |
| 17.Provisional Regulations Concerning the Vehicle and Vessel Usage License Plate Tax Detailed Rules for Its Implementation | 20 Sep.1951, by the Central Government Administration Council to be made by People’s Governments at Provincial Level | 20 Sep.,1951 |
| 18.Provisional Regulations of the People’s Republic of China Concerning Stamp Tax Detailed Rules for Its Implementation | 6 Aug.1988, by State Council 29 Sep.1988, by Ministry of Finance | 1 Oct.,1988 1 Oct.,1988 |
| 19.Provisional Regulations Governing Deed Tax Detailed Rules for Its Implementation | 7 Jul.1997, by State Council 28 Oct.1997, by Ministry of Finance | 1 Oct.1997 1 Oct., 1997 |
| 20. Security Exchange Tax (to be legislated) | ||
| 21.Provisional Regulations Concerning Slaughter Tax (administered by local governments) | 19 Dec.1950, by the Central Government Administration Council | |
| 22.Provisional Regulations of the People’s Republic of China on Banquet Tax (administered by local governments) | 22 Sep.1988, by State Council | |
| 23.Provisional Regulations of the People’s Republic of China on Agriculture Tax Detailed Rules for Implementation | 3 Jun.1958, by the 96th Session of the Standing Committee of the 1st NPC to be made by the People' s Government at Provincial Level | 3 Jun.,1958 |
| 24.The Rules of the State Council on Levying Agriculture Tax on Agriculture Specialities Measures for Its Implementation | 30 Jan.,1994, by State Council to be made by the People' s Government at Provincial Level | 30 Jan.,1958 |
| 25. Animal Husbandry Tax: no national legislation | If levied, rules should be made by the provincial governments concerned | |
| 26. Regulations of the People ' s Republic of China on Import and Export Customs Duty | 7 Mar.1992, by State Council; Second revision by State Council on March 18,1992 | 1 Apr.1992 |
| 27. Rules of Levying Customs Duty on Entry Passengers ' Luggage and Personal Postal Articles | 18 May,1994, by the Customs Tariff and Classification Committee of the State Council | 1 Jul.,1994 |
| 28. Law of the People's Republic of China on Tax Administration and Collection Detailed Rules for Its Implementation | 4 Sep.,1992, passed by 27th Session of the Standing Committee of the 7th NPC, and revised and re- promulgated by the 12th Session of the Standing Committee of the 8th NPC on 28 Feb.,1995 4 Aug.,1993, by the State Council | 28 Feb.,1995 4 Aug.,1993 |
| 29. Supplementary Rules of the Standing Committee of NPC of the People’s Republic of China on Punishing Tax Evasions and Refusal to Pay Taxes | 4 Sep.1992, by the 27th Session of the Standing Committee of the 7th NPC | 1 Jan.,1993 |
| 30.Measures of the People’s Republic of China on Invoice Management Detailed Rules for Its Implementation | 12 Dec.,1993, approved by State Council and issued by Ministry of Finance on 23 Dec., 1993 28 Dec., 1993, by the SAT | 23 Dec.,1993 23 Dec.,1993 |
| 31. Resolutions of the Standing Committee of NPC of the People’s Republic of China on Punishing Any False Issuance, Forgery and/or Illegal Sales of VAT Invoices | 30 Oct.,1995, by the 16th Session of the Standing Committee of the 8th NPC | 30 Oct.,1995 |
| 32. Rules on Tax Administrative Appealing | 6 Nov.,1993, by the SAT | 6 Nov.,1993 |
Note: The provisions of criminal responsibilities in Supplementary Rules of the Standing Committee of NPC of the People's Republic of China on Penalizing Tax Evasions and Refusal to Pay Taxes and Resolutions of the Standing Committee of NPC of the People's Republic of China on Penalizing Any False Issuance, Forgery and/or Illegal Sales of VAT Invoices have been integrated into the Criminal Law of the People's Republic of China revised and promulgated on 14 March, 1997.
Foreign investment taxation
There are 14 kinds of taxes currently applicable to the enterprises with foreign investment, foreign enterprises and/or foreigners, namely: Value Added Tax, Consumption Tax, Business Tax, Income Tax on Enterprises with Foreign Investment and Foreign Enterprises, Individual Income Tax, Resource Tax, Land Appreciation Tax, Urban Real Estate Tax, Vehicle and Vessel Usage License Plate Tax, Stamp Tax, Deed Tax, Slaughter Tax, Agriculture Tax, and Customs Duties.
Hong Kong, Macao and Taiwan and overseas Chinese and the enterprises with their investment are taxed in reference to the taxation on foreigners, enterprises with foreign investment and/or foreign enterprises. In an effort to encourage inward flow of funds, technology and information, China provides numerous preferential treatments in foreign taxation, and has successively concluded tax treaties with 60 countries (by July 1999): Japan, the USA, France, UK, Belgium, Germany, Malaysia, Norway, Denmark, Singapore, Finland, Canada, Sweden, New Zealand, Thailand, Italy, the Netherlands, Poland, Australia, Bulgaria, Pakistan, Kuwait, Switzerland, Cyprus, Spain, Romania, Austria, Brazil, Mongolia, Hungary, Malta, the UAE, Luxembourg, South Korea, Russia, Papua New Guinea, India, Mauritius, Croatia, Belarus, Slovenia, Israel, Vietnam, Turkey, Ukraine, Armenia, Jamaica, Iceland, Lithuania, Latvia, Uzbekistan, Bangladesh, Yugoslavia, Sudan, Macedonia, Egypt, Portugal, Estonia, and Laos, 51 of which have been in force.
Major taxes
Value Added Tax
1) Taxpayers
The VAT taxpayers include any enterprise, unit and other individual engaged in sales of goods, importation of goods, provision of services of processing, repairs and replacement (hereinafter referred to as 'taxable services' in short) within the territory of the People's Republic of China.
(2) Taxable items and tax rates
Table of VAT Taxable Items and Rates
| Coverage of collection | Rates |
|---|---|
| Exportation of goods (except otherwise stipulated by the State) | 0% |
| 1. Agriculture, forestry, products of animal husbandry, aquatic products; 2. Edible vegetable oil and food grains duplicates; 3.Tap water, heating, cooling, hot air supplying, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, coal/charcoal products for household use; 4.Books, newspapers, magazines (excluding the newspapers and magazines distributed by the post department); 5.Feeds, chemical fertilizers, agricultural chemicals, Agricultural machinery and plastic covering film for farming; 6.Dressing metal mineral products, dressing non-metal mineral products, coal. |
13% |
| Crude oil, mine salt and goods other than those listed above, and services of processing, repairs and replacement. | 17% |
(3) Computation of tax payable
a. Normal taxpayers
To compute the VAT payable, the normal taxpayers need to separately calculate the output tax and the input tax for the current period. Then the difference between the output tax and the input tax shall be the actual amount of VAT payable.
The formula for computing the tax payable is as follows:
Tax payable = Output tax payable for the current period - Input tax for the current period
Output tax payable = Sales volume in the current period × Applicable tax rate
b. Small taxpayers
Small taxpayers are taxed on the basis of the revenue derived from sales of goods or provision of taxable services by applying proper rates (4% for commercial sector, and 6% for other sectors). The computing formula is:
Tax payable = Sales amount × Applicable rate
c. Importation
The imported goods are taxed on the basis of the composite assessable price by applying the applicable tax rate.
d. VAT refund for exporters
In case of 0% rate applicable to the exported goods, the exporters may apply to the tax authorities for the input tax refund on those goods exported. At present, the refund rates consist of 5%, 6%, 9%, 11%, 13% and 17%.
(4) Tax exemptions
The exempted items include: self-produced primary agricultural products sold by agricultural producing units and individuals; imported goods being processed for exportation; the self-use equipment imported out of the total investment for the projects with foreign investment or domestic investment which are encouraged by the State; contraceptive medicines and devices; antique books purchased from the public; instruments and equipment imported for direct use in scientific research, experiment and education; imported materials and equipment granted by foreign governments or international organizations; articles imported directly by organizations for the disabled for exclusive use by the disabled.
Consumption Tax
(1) Taxpayers
The taxpayers of Consumption Tax include all enterprises, units, household businesses and other individuals engaged in production or importation of taxable consumer goods within the territory of the People' s Republic of China. The taxable consumer goods exported by the taxpayers are exempt from Consumption Tax, unless the taxable consumer goods are restricted by the State from exportation.
(2) Taxable items and tax rates
Table of Consumption Tax Taxable Items and Rates:
| Taxable items | Tax rates (tax amount) | Note |
|---|---|---|
| 1. Tobacco (1) Grade A Cigarettes (2) Grade B Cigarettes (3) Grade C Cigarettes (4) Cigars (5) Cut tobacco | 50% 40% 25% 25% 30% | |
| 2. Alcoholic drinks and alcohol (1) white spirits made from cereal (2) white spirits made from potatoes (3) yellow spirits (4) beer (5) other alcoholic drinks (6) alcohol | 25% 15% 240 yuan per tonne 220 yuan per tonne 10% 5% | |
| 3. Cosmetics | 30% | |
| 4. Skin-care and hair-care products | 8% | Perfumed soap currently taxed at 5% |
| 5. Precious jewellery, pearls, precious jade and stones (1) Gold and silver jewellery (2) Other jewellery, pearls, precious jade and stones | 5% 10% | |
| 6. Firecrackers and Fireworks | 15% | |
| 7. Gasoline (1) Unleaded (2) Leaded | 0.2 yuan per litre 0.28 yuan per litre | |
| 8. Diesel | 0.1 yuan per litre | |
| 9. Motor Vehicle Tyres | 10% | |
| 10. Motor-cycles | 10% | |
| 11. Motor cars | 3%,5%,8% | Rate applied on the basis of the type and cylinder capacity of the car |
(3) Computation of tax payable
The computation of Consumption Tax payable shall follow either the ad valorem principle or quantity-based principle. Generally, the producers of taxable consumer goods are the taxpayers and the Consumption Tax shall be paid on sales of the goods by the producers. The computing formula is:
a. Tax payable =sales amount of taxable consumer goods × Applicable tax rate , or b. Tax payable = sales volume of taxable consumer goods × Tax amount per unit
Imported taxable consumer goods to which Ad valorem method is applied in computing the tax payable shall be assessed according to the composite assessable price and the applicable rate.
Business Tax
(1) Taxpayers
Taxpayers of Business Tax include all enterprises, units, household businesses and other individuals engaged in provision of taxable services, transfer of intangible assets or in sales of immovable properties within the territory of the People's Republic of China.
(2) Taxable items and tax rates
Table of Business Tax Taxable Items and Rates:
| Taxable items | Tax rates |
|---|---|
| 1. communications and transportation | 3% |
| 2. construction | 3% |
| 3. financial and insurance businesses | 8% |
| 4. post and tele-communication | 3% |
| 5. culture and sports | 3% |
| 6. entertainment | 5%-20% |
| 7. services | 5% |
| 8. transfer of intangible assets | 5% |
| 9. sales of immovable properties | 5% |
(3) Computation of tax payable
The amount of Business Tax payable is equal to the turnover times the applicable tax rate. The computing formula is:
Tax payable = Turnover × Applicable tax rate
(4) Major exemptions
Business Tax may be exempt for: nursing services provided by nurseries, kindergartens, old people's homes, welfare institutions for the handicapped, matchmaking and funeral services; services provided individually by the disabled to the public; medical services provided by hospitals, clinics and other medical institutions; educational services provided by schools and other educational institutions, and services provided by students in part-time work; agricultural mechanical ploughing, irrigation and drainage, prevention and treatment of plant diseases and insect pests, plant protection, insurance for farming and animal husbandry, and related technical training services, breeding and the prevention and treatment of diseases of poultry, livestock and aquatic animals; admission fees for cultural activities conducted by memorial hall, museum, cultural centre, art gallery, exhibition hall, academy of painting and calligraphy, library and cultural protective units, admission fees for cultural and religious activities taking place at religious premises.
Enterprise Income Tax
(1) Taxpayers
The taxpayers of Enterprise Income Tax include any state-owned enterprise, collective enterprise, private enterprise, joint operation enterprise, joint equity enterprise, and other organizations.
(2) Tax base
The taxpayers' world-wide income from production and business operations and from other sources shall be subject to Enterprise Income Tax according to law. The Enterprise Income Tax is computed on the basis of the taxable income which is equal to the total income earned by the taxpayers in a tax year less allowable deductions for the same tax year.
(3) Tax rates and computation of tax payable
Normally, the amount of Enterprise Income Tax payable is computed on the basis of the taxable income and by applying the rate of 33%. The formula for computing the tax payable is:
Income tax payable= Taxable income × 33%
Besides the statutory rate, two lower rates of 18% and 27% are designed for some less profitable enterprises.
(4) Major tax exemptions and reductions
a. Enterprises operating in autonomous regions requesting for preferential treatment and incentives may be, upon the approval of the People's Government at provincial level, given tax reductions or exemptions for a specified period;
b. Tax exemption or tax reduction may be granted to enterprises or businesses that meet the relevant rules of the State, such as high-technology enterprises and enterprises engaged in tertiary industry set up in line with the relevant regulations of the State, enterprises using wastes as their key raw materials, newly-registered enterprises located in the revolutionary base areas, minority nationality areas, remote areas and poor areas approved by the State, enterprises-suffering from serious natural disasters, newly-registered service enterprises providing social employment opportunities, factories and farms run by schools under the educational administration departments, welfare production enterprises belonging to the civil administration departments, township enterprises, State-owned agricultural enterprises, etc..
Income Tax on Enterprises with Foreign Investment and Foreign Enterprises
(1) Taxpayers
a. Enterprises with foreign investment include Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly-foreign owned enterprises.
b. Foreign enterprises include foreign companies, enterprises and other economic organizations which have establishments or places in China engaged in production or business operations or which, though without establishments or places in China, have income from sources within China.
(2) Tax base
The enterprises with foreign investment with head office in China pay income tax on their world-wide income. Foreign enterprises pay income tax only on their income derived from sources within China.
The income tax base for enterprises with foreign investment and foreign enterprises is the taxable income which is the amount remaining from its gross income in a tax year after allowable deduction for costs, expenses and losses.
Any foreign enterprise which has no establishment or place in China but derives income of profits, interest, rental, royalties and other income from sources within China or which, though it has an establishment or place in China, the said income is not effectively connected with such establishment or place, is taxed on the basis of the gross amount of such income.
(3) Tax rates and calculation of the amount of tax payable
The income tax on enterprises with foreign investment and foreign enterprises is 30% of the taxable income plus 3% local income tax, totalling 33% rate. Any foreign enterprise which has no establishment or place in China but derives income of profits, interest, rental, royalties and other income from sources within China or which, though it has an establishment or place in China, the said income is not effectively connected with such establishment or place, pays tax of 20% on such income. The formula for computing the amount of tax payable is:
Amount of tax payable = Taxable income ×Applicable tax rate
(4) Main tax incentives
a. Tax exemptions or tax reductions may be granted to enterprises with foreign investment of a production nature, export-oriented enterprises with foreign investment, technologically advanced enterprises with foreign investment, and enterprises with foreign investment and foreign enterprises established in the Special Economic Zones, the Economic and Technological Development Zones, the Coastal Open Economic Zones and the New and High-technology Industrial Development Zones specified by the State.
b. The share of profits earned by foreign investors from their invested enterprises may be exempted from tax. The foreign investor who reinvests its share of profits from enterprises with his investment directly into that enterprise by increasing its registered capital or who uses the profit as capital investment to establish another enterprises with foreign investment may receive some tax refund.
c. The exemption from or reduction of local income tax for any enterprise with foreign investment engaged in an encouraged industry or project may, in accordance with the actual situation, be granted by the People's Government of the relevant Province, Autonomous Region or Municipality directly under the State Council.
Individual Income Tax
(1) Taxpayers
Any individual who has domicile in China or who has no domicile in China but has resided in China for one year or more shall pay Individual Income Tax on his world-wide income. Any individual who is neither domiciled nor resident in China or who has resided in China for less than one year shall pay Individual Income Tax on the income from sources inside China.
(2) Taxable items and calculation of Individual Income Tax payable a. Wages and salaries
Wages and salaries are taxed on the basis of the balance of taxpayer' s monthly wages and salaries after lump-sum deduction of 800 yuan as expenses and by applying the nine-grade progressive rates as shown in the table below.
Individual Income Tax Rates Schedule (1):
| Grade | Monthly Taxable Income | Tax Rate (%) | Quick Deduction |
|---|---|---|---|
| 1 | Income of 500 yuan or less | 5 | 0 |
| 2 | That part of income in excess of 500 to 2,000 yuan | 10 | 25 |
| 3 | That part of income in excess of 2,000 to 5,000 yuan | 15 | 125 |
| 4 | That part of income in excess of 5,000 to 20,000 yuan | 20 | 375 |
| 5 | That part of income in excess of 20,000 to 40,000 yuan | 25 | 1375 |
| 6 | That part of income in excess of 40,000 to 60,000 yuan | 30 | 3375 |
| 7 | That part of income in excess of 60,000 to 80,000 yuan | 35 | 6375 |
| 8 | That part of income in excess of 80,000 to 100,000 yuan | 40 | 10375 |
| 9 | That part of income in excess of 100,000 yuan | 45 | 15375 |
The formula for computing the amount of tax payable is:
Monthly taxable income = Monthly aggregate wages/salaries - 800 yuan Monthly amount of tax payable = Monthly taxable income ×Applicable rate - Quick deduction
The taxpayers who have no domiciles in China but earn wages and salaries from China or who have domiciles in China and earn wages and salaries from outside China may enjoy additional expense deductions (currently 3200yuan per month) in addition to the regular monthly deduction of 800 yuan in computing the taxable income.
b. Individual household production or business operation income
With respect to the individual household production or business operation income, the amount of tax payable is computed on the basis of the balance of the gross annual production and business operation income after deduction of the related cost, expenses and losses and by applying the five-grade progressive tax rates as listed in the table below.
Individual Income Tax Rates Schedule (2):
| Grade | Annual Taxable Income | Tax Rate (%) | Quick Deduction |
|---|---|---|---|
| 1 | Income of 5,000 yuan or less | 5 | 0 |
| 2 | That part of income in excess of 5,000 to 10,000 yuan | 10 | 250 |
| 3 | That part of income in excess of 10,000 to 30,000 yuan | 20 | 1250 |
| 4 | That part of income in excess of 30,000 to 50,000 yuan | 30 | 4250 |
| 5 | That part of income over 50,000 yuan | 35 | 6750 |
The formula for computing the tax payable is:
Annual taxable income = Gross annual income of production /business - Costs,expenses and losses Tax payable for the year =Annual taxable income ×Applicable tax rate - Quick deduction
c. Income from contracted or leased operation of enterprises or institutions The income from contracted or leased operation of enterprises or institutions is taxed on the basis of the balance of the gross annual income after deduction of the necessary expenses (currently 800 yuan per month) and by applying the suitable tax rate in Individual Income Tax Rates Schedule(2) above.
d. Remuneration for personal service, author' s remuneration, royalties, income from lease of property
The income of remuneration for personal service, author's remuneration, royalties and income from lease of property are taxed on the basis of remaining sum of the income after deduction of 800 yuan when each payment of the income is not over 4,000 yuan or on the basis of the remaining sum of the income after deduction of 20% of the income as the expenses when each payment of the income is over 4,000 yuan and by applying the rate of 20%. The formula for that is:
Taxable income= Cross value of taxable items - 800 yuan (or 20% of gross value of taxable items) Amount of tax payable = Taxable income × 20 %
e. Income from transfer of property
The tax base is the balance of the proceedings derived from transfer of property after deducting the original value of the property and the reasonable expenses The applicable rate is 20%. The formula for computing the amount of tax payable is:
Taxable income = Proceedings from transfer of property - Original value of property - Reasonable expenses Amount of tax payable = Taxable income × 20 %
f. Interests, dividends, bonuses and contingent income
The tax on interest, dividends, bonuses, contingent income and other income is based on each receipt of the income with the rate of 20%. The formula for computing the income tax payable is:
Tax payable = The full amount in each receipt ×20 %
(3) Main tax exemptions
The following income are exempt from income tax:
a. Awards for achievements in science, education, technology, culture, public health, physical culture and environmental protection granted by the Provincial People' s Governments, Ministries and Commissions under the State Council, China's People's Liberation Army Units at army level and above and by foreign and international organizations;
b. Interest income on saving deposits, interest income on National Bonds issued by the Ministry of Finance and interest income on financial bonds issued upon approval by the State Council;
c. Special governmental allowances provided in accordance with the uniform regulations of the State Council and the subsidies and allowances stipulated as being exempt by the State Council;
d. Welfare benefits, survivor's pensions and relief payments;
e. Insurance indemnities;
f. Military severance payment and demobilisation payment received by members of the armed forces;
g. Settlement payment, severance payment and retirement payment received by public servants and workers under the uniform provisions of the State;
h. Medical insurance pension and the basic retirement pension saved and withdrawn according to relevant rules;
i. Income derived by diplomatic agents and consular officers and other personnel who are exempt from tax under the provisions of the relevant Laws of the People's Republic of China;
j. Income exempt from tax as stipulated in the international conventions to which Chinese Government is a party and in the agreements it has entered into.
Resource Tax
(1) Taxpayers
The taxpayers of Resource Tax include all units and individuals engaged in the exploitation of mineral resources or production of salt prescribed in the Resource Tax Regulations within the territory "of the People' s Republic of China.
(2) Taxable items and tax rates
Table of Resource Tax Taxable Items and Tax Amount per Unit:
| Taxable items | Tax amount per unit |
|---|---|
| 1. crude oil | 8-30yuan per ton |
| 2. natural gas | 2-15 yuan per 1000 cubic metres |
| 3. coal | 0.3-5 yuan per ton |
| 4. other non-metal ores | 0.5-20 yuan per ton or per cubic metre |
| 5. ferrous metal ores | 2-30 yuan per ton |
| 6. non-ferrous metal ores | 0.4-30 yuan per ton |
| 7. salt (1) solid salt (2) liquid salt | 10-60 yuan per ton 2-10 yuan per ton |
(3) Computation of tax payable
The amount of Resource Tax payable is based on the quantity of the taxable products by applying the applicable tax amount per unit. The formula is:
Tax payable = Quantity of taxable products × Applicable tax amount per unit
(4) The main tax reductions and exemptions
a. Crude oil used for heating or repairing wells in the course of exploiting crude oil may be exempt;
b. For taxpayers suffering huge losses due to such reasons as accidents or natural disasters in the course of exploiting or producing taxable products, tax reduction or exemption may be given by taking into consideration the seriousness of the situation;
c. The Resource Tax payable on iron ores and on the non-ferrous metal ores by independent mines may be reduced.
Urban and Township Land Use Tax
(1) Taxpayers
The taxpayers of Urban and Township Land Use Tax include all enterprises, units, individual household businesses and other individuals (excluding enterprises with foreign investment, foreign enterprises and foreigners).
(2) Tax payable per unit
The tax payable per unit is differentiated with different ranges for different regions, i.e., the annual amount of tax payable per square meter is: 0.5-10 yuan for large cities, 0.4-8 yuan for medium-size cities, 0.3-6 yuan for small cities, or 0.2-4 yuan for mining districts. Upon approval, the tax payable per unit for poor area may be lowered or that for developed area may be raised to some extent. (3) Computation
The amount of tax payable is computed on the basis of the actual size of the land occupied by the taxpayers and by applying the specified applicable tax payable per unit. The formula is:
Tax payable = Size of land occupied ×Tax payable per unit
(4) Major exemptions
Tax exemptions may be given on land occupied by governmental organs, people's organizations and military units for their own use; land occupied by units for their own use which are financed by the institutional allocation of funds from financial departments of the State; land occupied by religious temples, parks and historic scenic spots for their own use; land for public use occupied by Municipal Administration, squares and green land; land directly utilized for production in the fields of agriculture, forestry, animal husbandry and fishery industries; land used for water reservation and protection; and land occupied for energy and transportation development upon approval of the State.
City Maintenance and Construction Tax
Farm Land Occupation Tax
Fixed Assets Investment Orientation Regulation Tax
Land Appreciation Tax
House Property Tax
Urban Real Estate Tax
Vehicle and Vessel Usage Tax
Vehicle and Vessel Usage License Plate Tax
Stamp Tax
Deed Tax
Agriculture Tax
Customs Duties
(1) Duty payers
The payers of Customs Duties include consignees who import goods permitted by China and consignors who export goods permitted by China, the former shall pay import duties and the latter shall pay export duties.
(2) Tariff rates
The tariff rates include import duty rates and export duty rates. The tariff rates for imports fall into two categories; general tariff rates and preferential tariff rates. The general tariff rates apply to the imports originating in the countries with which the People's Republic of China has not concluded most-favoured-nation trade agreements; the preferential tariff rates apply to imports originating in the countries with which the People's Republic of China has concluded most-favoured-nation trade agreements. In 1999, there are 6, 940 tariff numbers for imported goods in the Classifications. The general tariff rates for importation range from 0%, 8% to 270% with over 20 different rates. The preferential tariff rates vary from 0% , 1 % to 121.6% with over 50 different rates, and the arithmetic average rate is 16.8%. A small number of imported goods are subject to duties on quantity, compound, or sliding basis. There are 36 tariff numbers for exported goods subject to Duties with 5 differential rates ranging from 20% to 50%.
(3) Computation of duty payable
Customs Duty is computed either on ad valorem basis and by applying an applicable rate or on quantity basis and by applying amount of duty per unit.
The formula is:
a. Duty payable = Quantity of imported/exported goods × Tax-inclusive price × Rate or b. Duty payable = Quantity of imported/exported goods ×Amount of duty per unit
(4) Major reductions and exemptions
a. The following goods may be exempted from Customs Duties upon verification by the Customs: the duty amount to be paid for one consignment of goods below RMB 10 yuan; advertising matter and trade samples of no commercial value; goods gifted by international organizations or foreign governments; and fuels, stores and beverages loaded on a means of conveyance entering or leaving the country for use en route.
b. Duty reduction or exemption shall be given to goods and articles specified as duty reduction or exemption items by international treaties to which the People's Republic of China is either a contracting or an acceding party.
c. Raw materials, subsidiary materials parts, accessories, components and packing materials imported for overseas businesses to process, assemble or produce export-oriented products shall be exempt from duties on the part of actually processed and exported; or duties are collected first on the imported materials and parts and then refunded on the basis of the completed products actually processed and exported.
Tax governance
State Administration of Taxation
The State Administration of Taxation (SAT) is the highest tax authority in China. The SAT is the ministry-level department directly under the State Council which is the functional department in charge of the State revenue work. Its mandates are mainly the followings:
- Drafting the relevant tax laws, regulations and the detailed rules for the implementation thereof; putting forward suggestions on tax policy and submitting it to the State Council together with the Ministry of Finance, and formulating the implementation procedures;
- Being involved in studying macro-economic policy and division of tax power between the Central and local governments; studying the overall level of tax incidence and proceeding with suggestions on how to regulate and control the macro-economy by means of taxation; formulating, and monitoring the implementation of, the rules and procedures of taxation work; supervising local tax administration and collection;
- Organizing and carrying out tax administration system reform; formulating tax administration procedures; monitoring the implementation of tax laws, regulations and tax policy;
- Organizing and executing the collection and administration of Central taxes, shared taxes, Agriculture Tax and contributions to funds designated by the State; preparing revenue plan; providing interpretation for any administrative and general tax policy issues arising in implementation of tax laws; handling matters of tax exemptions and reductions;
- Promoting international exchange and cooperation in the field of taxation; participating in international tax conventions, initialing and executing relevant treaties and agreements;
- Dealing with collection and refund of VAT and/or Consumption Tax on importation and exportation;
- Managing personnel, salaries, size and expenditure for all SAT offices across the country; being in charge of directors and deputy directors, and staff at similar level, of SAT offices at provincial level; providing comments on appointment or removal of directors of provincial local tax bureaus;
- Being in charge of education, training and ideological education for tax staff in China; and
- Organizing tax publicity activities and tax theoretical research; administering registered tax agents; and standardizing tax agency services.
Tax organizations at and below provincial level
Due to the need of the revenue sharing system, the tax organizations at and below the provincial level are divided into offices of the SAT and local tax bureaus.
The SAT conducts a vertical leadership over the offices of SAT with respect to organization, size, personnel, budgets, and assists the local governments in a form of dual leadership over the local tax bureau.
SAT offices
The offices of SAT include all offices of SAT in jurisdictions at county level, municipal level and provincial level, and tax stations (or branches) as well. Tax stations (or branches) are representative offices of the county offices and set up on the basis of economic districts, administrative districts or sector.
The offices of SAT at provincial level are departmental-level administrative organizations directly reporting to the Headquarters of SAT. They are the functional organs being in charge of the revenue work within their own jurisdictions. They are also responsible for carrying out the relevant tax laws, regulations and rules of the State by working out the concrete implementation measures in combination with local practical condition. The Directors and Deputy Directors are appointed by the Headquarters. The number of divisions within one office of SAT at provincial level are limited to 12, such as the General Office, Turnover Tax Division, Income Tax Division, Planning and Financial Division, Collection and Administration Division, Personnel Division, Supervisory Division, and Policy and Legislative Division. In addition, every office of SAT at provincial level has set up a Tax Investigation Bureau, and may establish a Collection Bureau, a Foreign Investment Tax Bureau, and/or a Import and Export Tax Administration Bureau.
Local tax bureaus
Local tax bureaus include Local Tax Bureaus of Governments at provincial level, Local Tax Bureaus of Governments at municipal level, Local Tax Bureaus at county level, and Tax Stations (or Branches). The local tax bureaus at and below provincial level are under the dual leadership of both the local people's governments at the same-level and the local tax bureaus at higher level with the vertical leadership of the higher local tax bureau as the predominant one, i.e., everything concerning the organization, staff management, size and expenditure budget of local tax bureaus at municipal and county level is subject to the vertical leadership of the provincial local tax bureaus thereof.
The local tax bureaus at provincial level are functional departments of People's Governments at provincial level in charge of the local taxation work within their own jurisdictions. They are normally departmental-level administrative organs under dual leadership of local governments and Headquarters of SAT with the former as the predominant one. Within each local tax bureau at provincial level there are divisions such as General Office, Turnover Tax Division, Income Tax Division, Planning and Financial Division, Administration and Collection Division, Personnel Division, Supervisory Division, Policy and Legislative Division, and Foreign Investment Taxation Division.
The leadership of the SAT over the local tax bureau at the provincial level is reflected in the aspects of tax policies and business guidelines and coordination, the supervision in the implementation by the local authorities of the State unified tax rules and policies, and the coordination in the exchange of experiences. The directors of the local tax bureau at the provincial level are appointed or removed by the local government after consultation with the SAT.
In the beginning of 1999, there were in total nationwide 992,000 tax staff serving in 61 tax offices (or bureau) at provincial level, 30 municipal tax offices (or bureau) at vice-provincial level, 664 tax offices (or bureau) at municipal level, 4176 tax offices at county level and more than 55,466 tax stations (or branches). Out of the total staff, 575,000 were working for the SAT, 416,000 for local tax bureaus and tax collectors accounted for over 70%.
Division of administrative power over tax collection
Currently, the taxes and duties in China are respectively administered by the financial department, tax administration and customs administration.
SAT
The items that are collected and administered by the offices of SAT include: VAT; Consumption Tax; Business Tax, Income Tax and City Maintenance and Construction Tax consolidatedly paid by the railway department, the headquarters of various banks, and the headquarters of various insurance companies; the additional 3% Business Tax paid by financial and insurance enterprises; Income Tax on central enterprises; Income Tax on joint operation enterprises and joint stock enterprises with investment from both the central and local enterprises and/or institutions; Income Tax on local banks and non-bank financial enterprises; Income Tax and Resource Tax on offshore oil enterprises; Income Tax on enterprises with foreign investment and foreign enterprises; Security Exchange Tax (i.e., the Stamp Tax levied on security transactions prior to the commencement of Security Exchange Tax); late payment fines, late payment collection and fines with respect to the central taxes.
Local
The items that are collected and administered by local tax bureau are: Business Tax; City Maintenance and Construction Tax (excluding the part collected by the SAT); Income Tax on local government's enterprises, collective enterprises and private enterprises; Individual Income Tax; Resource Tax; City and Township Land Use Tax; Farm Land Occupation Tax; Fixed Assets Investment Orientation Regulation Tax; Land Appreciation Tax; House Property Tax; Urban Real Estate Tax; Vehicle and Vessel Usage Tax; Vehicle and Vessel Usage Plate Tax; Stamp Tax; Deed Tax; Slaughter Tax; Banquet Tax; Agriculture Tax and Animal Husbandry Tax and their local surtaxes; Inheritance Tax (not yet legislated); local tax late payment fines, collection of late payment and fines. In most part of China, the Agriculture Tax and Animal Husbandry Tax and their local surtaxes, Deed Tax, Farmland Occupation Tax are collected and administered by the financial departments of the local governments.
By the beginning of 1999, the numbers of taxpayers registered with the SAT the local tax bureau were respectively 11.247 million and 13.03 million. In order to strengthen tax collection and administration, reduce administrative costs, avoid work overlapping and simplify tax payment for the convenience of taxpayers, on some occasions, the SAT and the local tax bureau may entrust each other for collecting certain taxes on behalf.
Agricultural
In most area of China, the Agriculture Tax, Animal Husbandry Tax and its Local surtax, Deed Tax and Farm Land Occupation Tax are now collected and administered by the financial departments of Local governments.
Customs
The items that are collected and administered by the Customs Department are: Customs duties; import duty on luggage and postal articles. In addition, the Customs Department also collects the VAT and Consumption Tax the stage of importation or exportation on behalf of the State Administration of Taxation.
Revenue allocation between the Central and Local Governments
According to the rules of the State Council on revenue sharing system, the tax revenue in China may divided into Central tax revenue, local tax revenue and the tax revenue shared between the Central and local governments.
- Central tax revenue: domestic Consumption Tax; Customs Duties; VAT and Consumption Tax collected by the Customs on behalf.
- Local tax revenue: Individual Income Tax; City and Township Land Use Tax; Farmland Occupation Tax; Fixed Assets Investment Orientation Regulation Tax; Land Appreciation Tax; House Property Tax; Urban Real Estate Tax; Inheritance Tax (not yet legislated); Vehicle and Vessel Usage Tax; Vehicle and Vessel Usage License Plate Tax; Deed Tax; Slaughter Tax; Banquet Tax; Agriculture Tax and Animal Husbandry Tax and their local surtaxes.
- Tax revenue shared between the Central and local governments:
- a. Domestic VAT: 75% for Central Government and 25% for Local Governments;
- b. Business Tax: the part consolidatedly paid by the railway department, the headquarters of various banks and the headquarters of various insurance companies, and the additional 3% Business Tax paid by financial and insurance enterprises Resource Tax belong to the Central Government; and the rest is assigned to the local governments;
- c. Enterprise Income Tax: income tax paid by Central enterprises, income tax paid by local banks and non-bank financial institutions, and the part consolidatedly paid by the railway department, the headquarters of various banks and the headquarters of various insurance companies belong to the Central Government; and the rest for local governments;
- d. Income Tax on enterprises with foreign investment and foreign enterprises: the income tax paid by foreign funded Banks belongs to the Central Government, and others for local governments;
- e. Resource Tax: the part for the Central Government is the tax paid by offshore oil enterprises, and the rest is for the local governments;
- f. City Maintenance and Construction Tax: the part consolidatedly paid by the railway department, the headquarters of various banks and the headquarters of various insurance companies belong to the Central Government; and the rest to the local governments;
- g. Stamp Tax: 88% of the Stamp Tax revenue collected on stock transactions for the Central Government; the remaining 12% for the local governments; and
- h. Security Exchange Tax (not yet legislated and levied).
Revenue statistics
The table details China's revenue statistics from 1952 to 1997.
Note: For three years, the tax revenue exceeded the fiscal revenue due to the excessive amount of losses by enterprises that largely reduced the fiscal revenue.
| Year | Total Tax Revenue (in billion yuan) | Tax Revenue in Proportion to Total Fiscal Revenue (%) | Tax Revenue in Proportion to GDP (%) |
|---|---|---|---|
| 1952 | 9.77 | 53.2 | 14.4 |
| 1956 | 14.09 | 49.0 | 13.7 |
| 1960 | 20.37 | 35.6 | 14.0 |
| 1965 | 20.43 | 43.2 | 11.9 |
| 1970 | 28.12 | 42.4 | 12.5 |
| 1975 | 40.28 | 49.4 | 13.4 |
| 1978 | 51.93 | 45.9 | 14.3 |
| 1980 | 57.17 | 49.3 | 12.7 |
| 1982 | 70.00 | 57.7 | 13.2 |
| 1985 | 204.08 | 101.8 | 22.8 |
| 1986 | 209.07 | 98.5 | 20.5 |
| 1987 | 214.04 | 97.3 | 17.9 |
| 1988 | 239.05 | 101.4 | 16.0 |
| 1989 | 272.74 | 102.3 | 16.1 |
| 1990 | 282.19 | 96.1 | 15.2 |
| 1991 | 299.02 | 94.9 | 13.8 |
| 1992 | 329.69 | 94.6 | 12.4 |
| 1993 | 425.53 | 97.8 | 12.3 |
| 1994 | 512.69 | 98.3 | 11.0 |
| 1995 | 603.80 | 96.7 | 10.3 |
| 1996 | 690.98 | 93.3 | 10.2 |
| 1997 | 8234.0 | 95.2 | 11.0 |
Revenue breakdown in 1997
Revenue breakdown by Type of Taxes in 1997:
| Type of Tax | Revenue (in billion yuan) | Proportion to Total Revenue (%) | Proportion to GDP (%) |
|---|---|---|---|
| VAT | 348.13 | 42.3 | 46.4 |
| Consumption Tax | 71.11 | 8.6 | 9.6 |
| Business Tax | 135.34 | 16.4 | 18.1 |
| Enterprise Income Tax | 93.17 | 11.3 | 12.5 |
| Income Tax on Enterprises with Foreign investment and Foreign Enterprises | 14.31 | 1.7 | 1.9 |
| Individual Income Tax | 25.99 | 3.2 | 3.5 |
| Resource Tax | 5.66 | 0.7 | 0.8 |
| City and Township Land Use Tax | 4.40 | 0.5 | 0.6 |
| City maintenance and Construction Tax | 27.23 | 3.3 | 3.6 |
| Farmland Occupation Tax | 3.39 | 0.4 | 0.5 |
| Fixed Assets investment Orientation Regulation Tax | 7.83 | 1.0 | 1.0 |
| House Property Tax and Urban Real Estate Tax | 12.39 | 1.5 | 1.7 |
| Vehicle and Vessel Usage Tax and Vehicle and Vessel Usage Plate Tax | 1.72 | 0.2 | 0.2 |
| Stamp Tax | 26.63 | 3.2 | 3.6 |
| Deed Tax | 3.60 | 0.4 | 0.5 |
| Slaughter Tax | 2.39 | 0.3 | 0.3 |
| Agriculture Tax and Animal Husbandry Tax | 34.75 | 4.2 | 4.6 |
| Customs Duties | 31.95 | 3.9 | 4.3 |
| Total | 823.40 | 100.0 | 110.1 |
See also
- State Administration of Taxation
- General Administration of Customs
- Ministry of Finance
- Tariff and Classification Committee of the State Council
References
- An Overview of China's Tax System. 10-27-2007. State Administration of Taxation.
- Tax System of the People's Republic of China. Beijing Local Taxation Bureau.
External links
- The Economist. China's tax system. April 12, 2007.
