China Taxation: Interpretation

China Taxation: Interpretation

An

Approach

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Chapter 1An Overview of Taxation
INTRODUCTION
The People's Republic of China has established what is perhaps the most sophisticated and complex taxation system in the world today. This system of taxation has an impact on almost every business and investment decision. Decisions a business enterprise must make, such as the form it will take (i.e., sole proprietorship, partnership, or company), the scope and nature of its operations, and the manner in which it will be terminated cannot be made without consideration of the tax consequences. The purpose of this book is to introduce the reader to the People's Republic of China taxation, including Enterprise Income Tax, Individual Income Tax, Value-added Tax, Business Tax, etc. A corollary objective of the author is to aid the readers in the development of their tax awareness (i.e., ability to recognize tax problems, pitfalls, and planning opportunities).Such awareness is not only an important attribute of accountants and lawyers—it is essential for everyone who chooses a career in business.

1.1 THE NATURE OF A TAX
A tax is a levy imposed upon a taxpayer (an individual or legal entity) to support the government, anyone who failure to pay it would be punished by law. Thus, what a tax does is to provide a means through which the government derives a majority of the revenues necessary to keep the government in operation. A tax, however, is not merely a source of revenue. As discussed in a later section of this chapter, taxes have become a powerful instrument that policymakers apply to attain justice objective as well as economic objective. A tax normally has one or more of the following characteristics: (1) There is no direct relationship between the exaction of revenue and any benefit to be received
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by the taxpayer. Thus, a taxpayer cannot trace his or her tax payment to an armored car, a highway, a weather satellite, or any of the myriad expenditures of government. (2) Taxes are levied on the basis of predetermined criteria. In other words, taxes can be objectively determined, calculated, and even planned around. (3) Taxes are levied on a recurring or predictable basis. Most taxes are levied on a monthly basis or an annual basis, although some, like the Land Appreciation Tax, are levied only once. (4) Taxes should be distinguished from fines or penalties. A fine or a penalty is a measure, which is specifically designed to control or stops a particular activity. For instance, at one time the department of human resources and social security imposed a charge on the products of child labor. This charge was specifically aimed at stopping the use of children in manufacturing and thus was a fine instead of a tax. Also, taxes can be distinguished from licenses and fees are payments made for some special privilege granted or services rendered. The major types of taxes imposed by taxing authorities within The People's Republic of China are discussed later in other chapters. As will be noted, one or more of the above characteristics can be found in each of these various taxes.

1.2 THE OBJECTIVES OF TAXATION
In subsequent chapters, the specific provisions that must be followed to compute the amount of tax payable will be discussed in detail. Some may view this discussion as a hopeless attempt to explain what seems to be an endless barrage of boring rules—rules that, despite their apparent lack of “rhyme or reason,” must be considered if the final tax liability is to be determined. We may often feel frustrated that the rules of tax law are not completely founded when studying. However, each provision of the tax law originated with some objectives. The knowledge of the objectives underlying a particular provision is an important first step toward a comprehension of the provision. In studying taxation, it becomes apparent that many provisions have been enacted with similar objectives. The following discussion reviews some of the objectives of taxation that often serve as the reasons behind the rule. 1.2.1 Economic Objective At first glance, it seems clear that the primary objective of taxation is to provide the resources necessary to fund governmental expenditures. However, this is not entirely true. As many
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economists have pointed out, any central government has the power to control the money supply can satisfy its revenue needs by merely creating money. Nevertheless, complete reliance on the printing press of the People’s Bank of China to provide the needed resources is not a viable alternative. If the expenditures of government were financed predominantly with funds that created rather than those obtained through taxation, excess demand would result, which in turn would cause prices to rise, or inflation. Thus, taxation in serving a revenue function also operates along with other instruments of policy to attain a stable price level. The role of taxation in carrying out economic policy extends beyond the realm of revenue raising and price stability. Taxation is a major tool adopted by the government to attain satisfactory economic growth. The pilot of switching from Business Tax to Value-added Tax is illustrative. A major purpose of this pilot was directed toward revitalizing the growth of the transportation and certain areas of modern services industries. The pilot significantly lowered the tax burden of these industries to spur the economy out of a recession. Its objective was to avoid the double taxation of Value-added Tax and Business Tax on these industries. By so doing, the taxpayers of these industries would purchase more fixed assets and thus increase aggregate demand, resulting in economic growth. The government believes that economic environment can be optimized by adopting the tax system. For example, to stimulate the investment toward high technology enterprise, Venture capital investment enterprises has made equity investment in an unlisted new and high technology enterprise of small and medium size for 2 or more years, 70% of the investment made by the venture capital investment enterprise can be deducted from taxable income at the year when venture capital investment enterprise has held equity shares for two years, thus enabling shorten the payback period of venture capital investment enterprise. What is more, to promote the innovation capacity of enterprises, the Research and Development expenditures incurred for the purpose to develop new technologies, new products and new crafts could be subject to 50% more additional deduction after being deducted in full amount in light of actual situation when did not form intangible assets and accounted into current term profit and loss, or be subject to amortization based on 150% of intangible asset costs when formed intangible assets. The government does not always use incentives to encourage certain types of activity to gain economic goals. Sometimes, imposing a heavy tax would be a viable alternative to discourage or
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suppress certain economic activities. For example, to inhibit the speculation on real estate, the part of the appreciation amount exceeding 200% of the sum of deductible items will be levied at 60% high tax rate when transfer State-owned land use rights, while the part of the appreciation amount not exceeding 50% of the sum of deductible items just be levied at 30% lower tax rate. As will become clear in later chapters, the tax law is replete with rules designed to encourage, stimulate, or discourage, curb various business activities as government has deemed necessary over the years. 1.2.2 Justice Objective The tax system is used to achieve not only economic objective but justice objective as well. In essence, tax is the redistribution of social wealth, so justice lies at the heart of tax, since what some think of as just are regarded by others as completely unjust. In a free market, some individuals earn greater amounts of income and capital than others. Once wealth has been acquired, it tends to grow through the reinvestment of investment income received. This can lead to the rich getting richer and the poor getting poorer, with economic power becoming concentrated in relatively few hands. Government must make the value judgment that these trends should be countered by taxation policies which redistribute income and wealth away from the rich towards the poor. That is said, justice would be referred to as vertical equity instead of horizontal equity. This implies that taxpayers will be treated differently when they are not in the same situation. For that purpose, there are two major obstacles must be solved. First, how to determine the economic situation of taxpayer, i.e., the ability of taxpayer; Second, there must be reasonable distinctions between those who are in different situations. Ability of taxpayer is the composite of numerous factors including property, income, family situation, etc. Clearly, no one measure captures all of these factors. This being so, tax specialists generally have agree that there are three common criteria to measure the ability of taxpayer, including property, goods and income, of which income would be the best objective criteria. That is why the income tax, including Enterprise Income Tax and Individual Income Tax, continued to improve its share in fiscal revenue in the past few years. The second obstacle in implementing justice concerns the treatment of taxpayers who are differently situated. In terms of income, the problem may best be explained by reference to two
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taxpayers, A and B. If A’s income (e.g., RMB100, 000) exceeds B’s (e.g., RMB20, 000),it is assumed that A has more ability to pay and thus should pay more tax. The dilemma posed is not whether A and B should pay differing amounts of tax, but rather, what additional amount may be fairly charged to A. If a proportional tax of five percent is levied against A and B, A pays RMB5, 000 (5% of RMB100, 000) and B pays RMB1, 000 (5% of RMB20, 000). While application of this tax rate structure results in A paying RMB4, 000 more than B absolutely, A pays the same amount in relative terms, i.e., they both pay the same 5 percent. Those charged with the responsibility of developing tax policy have concluded that paying more tax in absolute terms does not adequately serve the justice objective. For this reason, a progressive tax rate structure is used, requiring relatively more tax to be paid by those having more income. With respect to A and B above, this structure would require that A pay a greater percentage of his income than B. The above discussion is but a brief glimpse of how justice considerations have shaped our tax law. Interestingly, most of the provisions mentioned have been enacted in the past 5 years. During this time, the government has relied increasingly on the tax system as a means to strike at the nation’s ills, especially, the fast-growing gap between rich and poor. Whether the tax law can be used successfully in this manner is unclear, however, we believe this is the right way. 1.2.3 Efficient Objective Although justice and economic objectives provide the rationale for much of our tax law, many provisions can be explained in terms of efficient principle, that is, the tax should place the minimum economic cost on society and markets while provide the right incentives growth. Most tax experts agree that there are at least three characteristics that an ‘efficient’ tax must meet, although these characteristics may be in conflict with economic and justice objectives: (1)The tax system should aim to be as non-distortionary as possible. In order to maximize efficiency, the ideal tax policy should be consistent with the principle of ‘fiscal neutrality’ in the sense that it does not interfere with the workings of markets or the decisions of individuals while minimizing disincentive effects on the level of economic activity; and (2) The tax can be administered by the government and the costs of collection are low relative to the tax paid over to the government (i.e., it is economical to operate); and (3) The tax is convenient, i.e., it can be predicted, provide certainty to enable taxpayers to plan, and its administration and compliance can be carried out with the utmost simplicity.
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1.3 KEY TAX TERMS
Before examining the various types of taxes in more detail, we must first become familiar with basic tax terminology. Some of the more common terms are briefly presented below. 1.3.1 Tax Base A tax base is that amount upon which a tax is levied. For instance, in the case of the Enterprise Income Tax, the tax base is taxable income. Taxable income is the taxpayer’s total income less non-taxable income, exemptions, deductions and the making up of losses of previous years. In the case of the Value-added Tax, the tax base is the increment value of its sale of goods or provision of processing, repair and/or replacements services. In the case of the Real Estate Tax, the tax base is the residual following a subtraction of between 10% and 30% from the original value of the property, or the rental income from the property if the property is leased. In generally, the tax either is collected by ad valorem or by quantity. Those collected by ad valorem, their tax base would be in the form of value, and however, those collected by quantity, their tax base would be in the form of number, weight, volume or area. For example, the tax base of Vehicle and Vessel Tax is the net tonnage of ship or the length of yacht. 1.3.2 Taxation Object The taxation object is the subject matter which should be levied according to the tax law; it is a main mark which a kind of tax distinguishes with another tax. Every kind of tax has its own taxation object; otherwise, the tax will lose the meaning of existence. For instance, in the case of Enterprise Income Tax, the taxation object of resident enterprise is the income originating both within and outside China. In the case of Value-added Tax, the taxation object is the goods sold in China, the services of processing, repair and repair provided in China, and goods imported within the territory of China. In the case of the Real Estate Tax, the taxation object is housing and so on. In the meantime, some taxes will be classified as a category of tax because of the similarity in taxation object. For example, because the taxation objects of Value-added Tax, Business Tax, Consumption Tax and Custom Duty are similar in connects with the commodity production, circulation and consumption, we classified them as a category, called Turnover Tax. All in all, the taxation object is one of the important bases in distinguishing categories of taxes. Taxation object determines the scope subject to a particular tax. While the tax base determines the
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value or quantity of the particular taxable object which has been identified by tax law, helps to calculate the amount of tax payable. 1.3.3Tax Rate Tax rate is the proportion of tax payable to the tax base, the standard of calculating tax liability, which is stipulated by tax law before tax collection or paying. To compute a tax, it is necessary to know the tax base and the applicable tax rate. The tax payable is then computed by multiplying the tax base by the tax rate: Tax payable=Tax base× Tax rate There are two types of tax rates: one is fixed rate represented by absolute number on tax base, applicable to specific duties, for instance, the consumption tax rate of unleaded petrol is 0.20 Yuan/Liter; the other is represented by relative number, i.e., the percentage of the tax base, applicable to ad valorem tax, which mainly has flat rate and progressive rate.  Flat rate

A flat rate is one that remains at a constant percentage regardless of the size of the tax base. The adoption of flat rate would simplify the calculating of tax payable, reduce the cost of collection, and make the tax meet the requirement of efficient objective. However, it can't impose different treatment on those who are in different situations; it's difficult to meet the requirement of justice objective.  Progressive rate

A progressive rate is one in which an increasing percentage rate is applied to increasing increments of the tax base. The progressive rate reflects the embedding in the tax rate of justice criterion. Recall that according to this criterion, taxpayers should pay according to their ability to pay the tax. The use of progressive rate, wherein people with higher taxable income levels pay higher tax rate, promotes vertical equality. The tax rate of Individual Income Tax on incomes from wages and salaries, incomes of private industrial and commercial households from their productions and business operations and incomes from remuneration for labor services follow a progressive rate on their taxable income. Example 1.1 Mr. Zhang and Ms. Fang are employees in an enterprise. The wage from the enterprise of Mr. Zhang in March, 2012 is RMB 4,000, while the wage of Ms. Fang is RMB 9,000. The Individual Income Tax levied from Mr. Zhang and Ms. Fang will be:
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The monthly taxable income of Mr. Zhang=4,000-3,500=RMB500 The monthly taxable income of Ms. Fang=9,000-3,500=RMB5, 500 (Note: The Monthly Taxable Income in here refers to the balance after deducting RMB3, 500 from the monthly revenue and any additional deductible fee.) Tax Rate Schedule Level Taxable Income 1 2 3 4 5 6 7 ￥0-￥1,500 ￥1,501-￥4,500 ￥4,501-￥9,000 ￥9,001-￥35,000 ￥35,001-￥55,000 ￥55,001-￥80,000 ￥80,000 and above Tax Rate 3% 10% 20% 25% 30% 35% 45% Total: Mr. Zhang Taxable Income ￥500 Tax ￥15 Ms. Fang Taxable Income ￥1,500 3,000 1,000 Tax ￥45 300 200

￥500

￥15

￥5,500

￥545

The tax payable of Mr. Zhang is RMB15, and the tax payable of Ms. Fang is RMB545.

It’s complicated to calculate the tax payable when there are more levels. To simplify the calculation, the fast calculation deduction will be applied. The process of Example 1 will be: Tax Rate Schedule Level 1 2 3 4 5 6 7 Taxable Income ￥0-￥1,500 ￥1,501-￥4,500 ￥4,501-￥9,000 ￥9,001-￥35,000 ￥35,001-￥55,000 ￥55,001-￥80,000 ￥80,000 and above Tax Rate 3% 10% 20% 25% 30% 35% 45% Fast Calculation Deduction 0 105 555 1,005 2,755 5,505 13,505

The tax payable of Mr. Zhang=Taxable income × Level Tax Rate-Fast Calculation Deduction=500×3%-0=RMB15 The tax payable of Ms. Fang=Taxable income × Level Tax Rate-Fast Calculation Deduction =5,500×20%-555=RMB545 There is another special progressive rate that its tax rate increasing depends on the increasing increments ratio of the tax base. The Value-added Tax on Land adopts 4 levels of progressive rates according to the value-added ratio of land.

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Tax Rate Schedule Level Value-added ratio 1 2 3 4 ≦50% ＞50%, and ≦100% ＞100%, and ≦200% ＞200% Tax Rate 30% 40% 50% 60% Fast Calculation Factor 0% 5% 15% 35%

Example 1.2K Co. transferred its building to M Co. together with the owning use-right, and gained the consideration of RMB 10,000,000. The cost of the building plus transferring taxes (including Business Tax, City Maintenance and Construction Tax, Additional Fund of Education, Stamp Duty)are RMB 4,000,000. The Value-added Tax on Land of K Co. will be: Value-added ratio=
, , , , , ,

=150%

Tax payable=Value-added× Level Tax Rate- Deduction× Fast Calculation Factor =6,000,000×50%-4,000,000×15% =RMB 2,400,000 1.3.4 Taxpayer Taxpayers are individuals or entities which are obligated to pay taxes in accordance with the tax law. Who will be identified as a taxpayer is generally determined by taxation object. For example, the owners or users of housing would be the taxpayers of Real Estate Tax; the companies obtained income derived from China would be the taxpayers of Enterprise Income Tax. The term of taxpayer resolve the question of who will be levied by government subject to tax law. Taxpayers are divided into natural person and legal person. A natural person is a real human being, including Chinese citizens, aliens and stateless persons. A legal person, as opposed to a natural person, is an organization that has capacity for civil rights and capacity for civil conduct and independently enjoys civil rights and assumes civil obligations in accordance with the law. Company is a common type of legal person. Withholding agent is a closely concept relating with taxpayer. A withholding agent is any person that has the control, receipt, custody, disposal or payment of any items of a taxpayer subject to withholding; the withholding agent is required to deposit any tax withheld and to make the returns prescribed. The withholding agents are obligated to withhold and remit tax or levy and remit tax in
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accordance with laws. The obligation of levying and remitting tax only can be found in Tentative Regulations on Consumption Tax, ‘For taxable consumer goods sub-contracted for processing, the tax shall be withheld by the sub-contractor upon delivery to the contractor unless the subcontractor is a natural person’, i.e., the sub-contractor shall levy the tax from the contractor and remit it to tax authority when deliver the taxable consumer goods. It should be noted that taxpayer is not necessarily the bearer of tax. The incidence of duty of indirect taxes, such as Turnover Tax (including Value-added Tax, Business Tax, Consumption Tax, and Custom Duty), can pass to the buyer via price. 1.3.5 Tax-inclusive and Tax-exclusive Tax rates can be presented differently due to differing definitions of tax base, which can make comparisons between tax systems confusing. Some tax systems include the taxes owed in the tax base (tax-inclusive), while other tax systems do not include taxes owed as part of the tax base (tax-exclusive). Value-added Tax is the only one which is quoted exclusively and other taxes are quoted inclusively. If the tax base of Value-added Tax includes the tax, the first step to calculate tax payable should restore it to tax-exclusive base. The formula is: Tax-exclusive base=Tax-inclusive base÷ (1+Tax rate) On the contrary, if the tax base of other tax excludes the tax, the first step should restore it to tax-inclusive base. The formula is: Tax-inclusive base=Tax-exclusive base÷ (1-Tax rate) Example 1.3 L Co. is a Value-added Tax general taxpayer; it sold 2TV to the consumer in February 2012, and issued a general invoice indicated the price of RMB 10,000. The output tax of Value-added Tax will be: The price of general invoice include Value-added Tax, we must restore it to tax-exclusive first, and then calculate the output tax. The Value-added Tax rate of TV is 17%. Output tax=10,000÷ (1+17%) ×17%=RMB1, 453 1.4 THE CLASSIFICATION OF TAXES At present, China taxation is comprised of 19 categories tax, i.e.(1) Enterprise Income Tax, (2) Individual Income Tax, (3) Value-added Tax, (4) Consumption Tax, (5) Business Tax, (6) City Maintenance and Construction Tax,(7) Resource Tax, (8) Urban and Township Land Use Tax,
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(9)House Property Tax, (10) Farmland Occupation Tax, (11) Land Appreciation Tax, (12) Vehicle Purchase Tax, (13) Vehicle and Vessel Usage Tax, (14) Vehicle and Vessel Usage License Plate Tax, (15) Stamp Tax, (16) Deed Tax, (17) Tobacco Leaf Tax, (18) Customs Duty, and (19) Fixed Assets Investment Orientation Regulatory Tax. Of which, the Fixed Assets Investment Orientation Regulatory Tax was suspended to be collected as from 2000 as determined by the State Council. Proper classification of such sundry taxes is essential to understand the nature and significance of different taxes. Usually, taxes are classified on the basis of form, nature, aim and methods of taxation. The following classifications are common in China tax systems: 1.4.1 Turnover tax, income tax, resource tax, property tax and behavior tax Turnover tax, income tax, resource tax, property tax and behavior tax are the official taxes classification of China according to taxation object.  Turnover tax

The levy of these taxes is normally based on the volume of turnover or sales of the taxpayers in the manufacturing, circulation or service sectors. It includes 7 kinds of taxes, namely, (1) Value-added Tax, (2) Consumption Tax, (3) Business Tax, (4) City Maintenance and Construction Tax (additional tax of Value-added Tax, Consumption Tax and Business Tax), (5) Vehicle Purchase Tax, (6) Tobacco Leaf Tax and (7) Customs Duty. As illustrated by CHART 1.2, Turnover taxis the main source of state revenue.  Income tax

Income tax is levied on the basis of the profits gained by producers or dealers, or the income earned by individuals, includes (1) Enterprise Income Tax and (2) Individual Income Tax.  Resource tax

It consists of (1) Resource Tax, (2) Urban and Township Land Use Tax and (3) Farmland Occupation 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.  Property tax

Property tax is a levy on property that the owner is required to pay. The property in here usually refers to land, buildings and personal property. It is comprised of (1) House Property Tax and (2)
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Vehicle and Vessel Usage Tax.  Behavior tax

These taxes are levied on specific behavior; include (1) Stamp Tax, (2) Land Appreciation Tax, (3) Deed Tax and (4) Vehicle and Vessel Usage License Plate Tax. 1.4.2 Central tax, local tax and shared tax According the revenue sharing system, the revenue of some taxes is directly allocated to the central government; the revenue of some taxes is directly distributed to local governments; while the revenue of some taxes is shared between the central and local governments. Thus, the taxes are divided into central tax, local tax and shared tax on the basis of distribution of tax revenue.  Central tax

The central tax include (1) Domestic Consumption Tax, (2) Customs Duty, (3) Vehicle Purchase Tax, (4) Value-added Tax and Consumption Tax collected by the Customs, (5) Business Tax, Enterprise 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, and (6) Enterprise Income Tax and Resource Tax on offshore oil enterprises.  Local tax

The local taxes include (1) Individual Income Tax, (2) Urban and Township Land Use Tax, (3) Farmland Occupation Tax, (4) Land Appreciation Tax, (5) House Property Tax, (6) Vehicle and Vessel Usage Tax, (7) Vehicle and Vessel Usage License Plate Tax, (8) Deed Tax, (9) Tobacco Leaf Tax, (10) Resource Tax (exclude the Resource Tax on offshore oil enterprises), (11) Stamp Duty (exclude the Stamp Duty levied on security transactions), (12) Business Tax and City Maintenance and Construction Tax (exclude the Business Tax consolidatedly paid by the railway department, the headquarters of various banks, and the headquarters of various insurance companies), and (13) the Value-added Tax collected in lieu of Business Tax.  Shared tax

The shared tax and its distribution ratio is as follows: (1) Domestic Value-added Tax: 75% for central government and the remaining 25% for local governments; (2) Enterprise Income Tax (exclude the part of central tax): will be determined according the actual tax revenue;
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(3) Stamp Duty levied on security transactions: 88% for central government and the remaining 12% for local governments. 1.4.3 Direct tax and indirect tax The taxes can also be divided into direct tax and indirect tax according to the incidence of taxes.  Direct tax

The tax is said to be a direct when the impact and incidents of a tax are on one and the same person. That is when a person on whom tax is levied is the same who finally bears burden of tax. He can’t shift its burden to some other person. The direct taxes include (1) Enterprise Income Tax, (2) Individual Income Tax, (3) House Property Tax, (4) Deed Tax, (5) Vehicle and Vessel Usage Tax, (7) Vehicle and Vessel Usage License Plate Tax, (8) Urban and Township Land Use Tax and (9) Farmland Occupation Tax.  Indirect tax

If the impact of tax falls on one person and incidents on another, the tax is called indirect tax. The direct taxes include (1) Value-added Tax, (2) Consumption Tax, (3) Business Tax, (4) Customs Duty, (5) Resource Tax, (6) City Maintenance and Construction Tax, (7) Stamp Duty, (8) Vehicle Purchase Tax, (9) Land Appreciation Tax.

1.5THE SOURCE OF TAX LAW
For the time being, the State Organs having authority to formulate tax laws or tax policy mainly include the National People' s Congress (hereinafter referred to NPC) and its Standing Committee (hereinafter referred to NPCSC), the State Council, the Ministry of Finance, the State Administration of Taxation(hereinafter referred to SAT), the Tariff and Classification Committee of the State Council(hereinafter referred to TCCSC), and the General Administration of Customs(hereinafter referred to GAC). 1.5.1 NPC AND NPCSC Article 58 of the P.R.C. Constitution states, ‘The National People’s Congress and its Standing Committee exercise the legislative powers of the state.’ It’s clearly that all tax law legislative powers herein should be exercised by NPC and NPCSC, no governmental organs, entities or individuals may be permitted to make decisions without authorization regarding the collection of tax or the cessation there of, the reduction, exemption or refund of tax, or the payment of tax
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underpaid in violation of the tax laws. The tax laws enacted by NPC and NPCSC, which have nationaleffectiveness, rank the highest level in the hierarchy of tax laws system. The Law of Enterprise Income Tax and the Law of Individual Income Tax are the tax laws enacted by NPC; the law of the Administration of Tax Levying and the Decision of the Standing Committee of the National People's Congress on Applying the Interim Regulations on Value-added Tax, Consumption Tax and Business Tax on Foreign-invested Enterprises and Foreign Enterprises are the tax laws enacted by NPCSC. 1.5.2 State Council  Authorized legislation

With a view to ensuring the smooth progress of the reform of the economic structure and the implementation of the open-up policy, the Third Session of The Sixth National People's Congress had decided to authorize the State Council to formulate, promulgate and implement, as it is necessary, interim provisions or regulations concerning the reform of the economic structure and the open-up policy in accordance with the Constitution and applicable laws and the basic principles of the relevant decisions of the National People's Congress and Standing Committee thereof, and to report the same to the Standing Committee of the National People's Congress for file. The State Council has formulated the Interim Regulations of Value-added Tax, the Interim Regulations of Business Tax, the Interim Regulations of Consumption Tax, the Interim Regulations of Resource Tax and the Interim Regulations of Land Appreciation according the authorization of NPC. These interim regulations, which acquired the same status as national laws, have higher legal authority than administrative regulations and departmental rules.  Administrative regulation

The State Council can enact administrative regulations to implement tax law. Administrative regulations have higher legal authority than deparmental rules. The Regulations for the Implementation of the Enterprise Income Tax Law, the Regulations for the Implementation of the Individual Income Tax Law and the Implementing Rules of the Law of the Administration of Tax Levying are the administrative regulations enacted by State Council. 1.5.3 Ministries and Commissions The various ministries, commissions, the People’s Bank of China, the Auditing Agency, and a
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body directly under the State Council exercising regulatory function, may enact departmental rules within the scope of its authority in accordance with national law, administrative regulations, as well as decisions and orders of the State Council. A matter on which an departmental rule is enacted shall be a matter which is within the scope of implementing national law, administrative regulations, and decisions or orders issued by the State Council. The departmental rules concerning taxation are mainly formulated by the Ministry of Finance, SAT, TCCSC, GAC.  The Ministry of Finance

One of major responsibilities of the Ministry of Finance is making department rules concerning the fiscal, financial, and accounting administration in China. The detailed rules for the implementation of the interim regulations (which have the status as the tax laws) are mainly enacted by the Ministry of Finance. These detailed rules are the Detailed Rules for the Implementation of the Interim Regulations of Value-added Tax, the Detailed Rules for the Implementation of the Interim Regulations of Business Tax, Detailed Rules for the Implementation of the Interim Regulations of Consumption Tax, the Detailed Rules for the Implementation of the Interim Regulations of Resource Tax and the Detailed Rules for the Implementation of the Interim Regulations of Land Appreciation Tax. The administrative matter may fall within the scope of authority of the Ministry of Finance and the SAT, since that, the Ministry of Finance and the SAT may jointly enact a departmental rule. For instance, the Circular on Issues Concerning Treatment of Enterprise Income Tax in Enterprise Restructuring Business is the departmental rule jointly promulgated by the Ministry of Finance and the SAT.  SAT

The State Administration of Taxation, as a department directly under the State Council, is in charge of the taxation of State. A major responsibility of the SAT is providing interpretation for any administrative and general tax policy issues arising in implementation of tax laws. The documents considered as tax departmental rules are generally called ‘Provisions’, ‘Directive Rules’, ‘Rules’, ‘Detailed implementation Rules’, ‘Decisions’ or ‘Measures’, which are promulgated by the SAT within the limits of its powers pursuant to laws or the administrative regulations. These department rules have a general binding force to nation-wide taxation authorities, taxpayers, withholding agents and other parties involved in the tax affairs. For instance,
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the Implementing Measures for Special Tax Adjustments (Trial Implementation) is the departmental rule enacted by the SAT. Additionally, some special normative documents of the SAT, which are general called ‘Circular’, were aimed at interpreting the simply tax affairs or the matters which are not yet ripe for department rules. Distinguishing the nation-wide force of the departmental rules, these normative documents have limited binding force on their served bodies. For example, the Circular of the State Administration of Taxation on Strengthening the Administration of Enterprise Income Tax on Incomes from Equity Transfers of Non-Resident Enterprises can only take effects among its served bodies.  TCCSC

The Tariff and Classification Committee of the State Council is a discussing and coordination institution under the State Council. The primary responsibility of TCCSC is to adjust, interpret and decide the Tariff affairs (such as Tariff rates, classification of import & export goods) in line with economic policies of the state. The departmental rules of the TCCSC are generally served to the GAC.  GAC

As a government agency that supervises the manages all arrivals in and departures from the custom territory of the mainland of the People’s Republic of China, the GAC has the authority to formulate the departmental rules on the levying affairs concerning the Value-added Tax, Consumption Tax and Tariff of goods imported. 1.5.4 Local decrees and rules Although the general rule is that the local People’s Congress/government has the authority to enact local decrees/rules on the local matters, there is exception to this rule on taxation.The legislative power of taxation is generally concentrated in the state; the local People’s Congress/government must not allow enacting tax decrees/rules unless it has attained express authority from tax law or tax administrative regulation. 1.5.5 Tax treaties The People’s Republic of China has signed comprehensive double tax treaties with 97 countries and regions to avoid double taxation and prevent fiscal evasion. These tax treaties generally cover the taxes of income and capital, which in the case of China are the Individual Income Tax and the
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Enterprise Income Tax. The tax treaties are considered the important source of China tax laws. 1.5.6The application rule of tax law Because of the tax enactments conflicting, the application rule of tax law becomesan important thing during tax practice.  Higher-level law preferred than lower-level law

The tax laws have hierarchical authority according to their legislative organs, thus, the tax laws can be distinguished higher-level laws and lower-level laws. The general rule is that a higher-level law should prevail when a lower-level law contravenes the higher-level law. It may be full expanded that: (1) The tax laws have higher legal authority than administrative regulations and departmental rules; and (2) The administrative regulations have higher legal authority than departmental rules. CHART 1.1 The hierarchy of domestic tax laws Level Law Organ NPC NPCSC State Council Administrative regulation Departmental rule SAT Ministry of Finance State Council Sample The Law of Enterprise Income Tax The law of the Administration of Tax Levying The Interim Regulations of Value-added Tax Regulations for the Implementation of the

Enterprise Income Tax Law Detailed Rules for the Implementation of the Interim Regulations of Value-added Tax Implementing Adjustments TCCSC Circular on Adjustment of Import Duties on Certain Commodities GAC Interim Administrative Measures of Customs for Bonded Port Zones Measures for Special Tax



Special law preferred than general law

In the case of laws, administrative regulations, departmental rules enacted by the same organ, if a
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special law governing a specific subject matter differs from a general law, the special law shall prevail. The contradiction of special law and general law ordinarily arises with regard to the imperfect consideration of legislation. In this situation, the special law preferred than general law can be assumed that the legislators planned to override the previous legislation.Thus, this principle also can be expressed that new law preferred than old law.  The law does not have retroactive force

The general rule is that a tax law can’t retroactively changes the tax consequences of transactions that were committed, or relationships that existed, before the enactment of the taxlaw.This rule can guarantee the predication of taxation, protect taxpayers accordingly. However, where a special law is made in order to better protect the rights and interests of taxpayers, this special law then has retroactive force.  Tax treaty preferred than domestic tax law

The tax treaty reflects the consensus of contracting states to eliminate the double taxation and prevent fiscal evasion of resident of a contracting state who is engaged in commercial, industrial, financial or any other activities in the other contracting state. The obligations of treaty must be substantial preformed even if it is inconsistent with domestic tax laws. That is to say, tax treaty should be preferred than domestic tax law. However, there are two exceptions: (1) Tax treaty shopping As an emerging tax issue, tax treaty shopping eroded the tax base of the contracting state. The contracting state may formulate domestic tax law to exclude the abusing of the tax treaty, then the domestic tax law will be preferred than the tax treaty under this situation. (2) More favorable tax treatment Sometimes, the domestic tax law is more favorable to the taxpayer than tax treaty treatment. The domestic tax is considered of weight to tax treaty under this situation because of the purpose of eliminating the double taxation. 1.6 TAX LEVYING ORGANS The taxes and duties in China are respectively administered by tax administration department, financial department and customs. 1.5.1 Tax administration department The State Administration of Taxation is the highest tax authority, organizing and executing the
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collection and administration of Central taxes, shared taxes. Due to the need of the revenue sharing system, the tax administration departments at and below the provincial level are divided into offices of SAT and local tax bureau. 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.  The offices of SAT

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 items that are collected and administered by the offices of SAT include: (1)Value-added Tax (exclude the import Value-added Tax collected by Customs on behalf of the offices of SAT), (2) Consumption Tax(exclude the import Consumption Tax collected by Customs on behalf of the offices of SAT), (3)Vehicle Purchase Tax, (4)Business Tax, Enterprise 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, (5)Enterprise Income Tax on the enterprises under the direct control of the central government, (6)Enterprise Income Tax on cooperative ventures and joint-stock enterprises which are established by the enterprises and undertaking units affiliated to the central government and the local governments, (7)Enterprise Income Tax on local banks and non-bank financial enterprises, (8)Enterprise Income Tax and Resource Tax on offshore oil enterprises, (9)Enterprise Income Tax on enterprises with foreign investment and foreign enterprises, (10) Individual Income Tax imposed on the saving deposit interests (which is temporarily exempted),and (11)The Stamp Duty levied on security transactions. The offices of SAT of pilot areas also are responsible for the collection and administration of Value-added Tax collected in lieu of the Business Tax.  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
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both the local 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 items that are collected and administered by local tax bureau are: (1)Business Tax and City Maintenance and Construction Tax (excluding the part collected by the SAT), (2)Enterprise Income Tax on local government's enterprises, collective enterprises and private enterprises, (3) Individual Income Tax, (4)Resource Tax, (5)Urban and Township Land Use Tax, (6)Tax on the Use of Arable Land, (7)Land Appreciation Tax, (8)House Property Tax, (9)Vehicle and Vessel Tax, and (10) Stamp Duty. Last several years, the collection and administration work of most areas on Farm Land Occupation Tax, Tobacco Leaf Tax and Deed Tax has been handed over from the financial departments to the local tax bureaus. There are only offices of SAT established in Tibet Autonomous Region, the tax authorities for collection and administration are in charge of all the items. 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 offices of SAT and the local tax bureau may entrust each other for collecting certain taxes on behalf. From 2009, collection and administration scope of the Enterprise Income Tax was adjusted according to the following rules: (1) The Enterprise Income Taxes of the following newly added enterprises are subject to collection and administration by the offices of SAT: (a) the enterprises which shall pay value added taxes, (b) the enterprises whose Enterprise Income taxes shall all be the central government revenue, (c) the enterprises which shall pay business taxes to the offices of SAT, (d) the banks (credit cooperatives) and insurance companies, (e) the foreign-invested enterprises, (f) the resident representative offices of foreign enterprises, and (g) other non-resident enterprises which established institutions or premises in China. For the newly added enterprises which shall pay business taxes, their Enterprise Income Tax shall
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be subject to collection and administration by the local tax bureau. (2) Where the income of the non-resident enterprises which do not establish institutions or premises in China is sourced from China, or where the income of the non-resident enterprises which establish institutions or premises in China is sourced from China, but with no actual connection to such institutions or premises, and paid by the domestic entities or individuals to such non-resident enterprises, the collection and administration of the Enterprise Income Tax to be withheld on such income shall be in the charge of the offices of SAT or the local tax bureaus that have jurisdiction over the domestic entities or individuals who pay such income. 2. For an enterprise that has established trans-regional operation and consolidated tax payment by the end of 2008, the taxation authority of Enterprise Income Tax of its branch institutions newly established as of 2009 shall be consistent with the taxation authority of Enterprise Income Tax of the head office; for a newly added enterprise that has established trans-regional operation and consolidated tax payment as of 2009, the taxation authority of the head office shall be determined on the principle as prescribed by the basic regulations of above (1), and the administrative authority of Enterprise Income Tax of its branch institutions shall be consistent with the administrative authority of Enterprise Income Tax of the head office. (4) In terms of enterprises that are exempted from Value-added Tax or Business Tax in accordance with the law, the collection and administration authorities of Enterprise Income Tax of such enterprises shall be determined on the basis of the above exempted tax. In terms of enterprises that are exempted from Value-added Tax as well as Business Tax, the collection and administration of the Enterprise Income Tax of such enterprises shall be temporarily in the charge of local tax bureau system. (5) In terms of enterprises that are required to pay Value-added Tax as well as Business Tax, in principle, the collection and administration authorities of Enterprise Income Tax of such enterprises shall be determined on the basis of the above tax to be paid for the main business declared by such enterprises when handling the tax registration. Where the main business cannot be determined when the enterprises apply for the tax registration certificates, generally, the first business item indicated in the industrial and commercial register shall be taken as the main business. The collection and administration authorities of enterprise income taxes once determined, in principle, they shall not be changed.
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1.6.2 Financial department In a few area of China, the Tobacco Leaf Tax, Farmland Occupation Tax and Deed Tax are now still collected and administered by the financial departments of the local governments. 1.6.3 Customs The items that are collected and administered by the Customs Department are: Customs Duty and Tonnage Dues. Furthermore, the Customs also withholding the Value-added Tax and Consumption Tax at the stage of importation or exportation on behalf of the State Administration of Taxation. 1.7 THE ADMINISTATION OF LEVYING The administration of levying of taxes collected by tax authorities is subject to the law of the Administration of Tax Levying, while the administration of levying of Customs Duty and taxes collected by Customs on behalf of the tax authorities shall be implemented in accordance with Customs Law and Regulations on Import and Export Duties. The follows are some important levying provisions prescribed by the law of the Administration of Tax Levying, and the levying provision of Customs Law and Regulations on Import and Export Duties will be introduced at the Chapters of Value-added Tax and Customs Tax. 1.7.1 Tax deferral A taxpayer or withholding agent shall pay or remit tax within the time limit prescribed by the tax law. However, considering the taxpayer’s special difficulties in the course of fulfilling its obligations to pay taxes, and protecting the legitimate interests of the taxpayer, it may, upon approval of the tax offices of SAT or local provincial level tax bureaus, postpone the payment of tax by a period of no longer than 3 months. The special difficulties are referred to:  The taxpayers suffer large losses due to any force majeure, as well as their normal production and operations are materially affected;  The current-period monetary funds are not enough to pay the taxes after the payable wages and social insurance premium are deducted. Where any taxpayers need to postpone the payment of taxes, they shall make applications before the expiry of the time limit for tax payments and submit the following materials: (1) the applications for deferral of tax payments, (2) the balance of current-period monetary capital and the statements of all the bank deposit accounts, (3) the balance sheets, (4) the payable wages and
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social insurance premium, and (5) the expenditure budgets that are required by tax authorities. The tax authorities shall make decisions on whether or not to approve within 20 days after they receive the applications for the deferral of tax payments. 1.7.2 Surcharge for overdue tax payment Where a taxpayer fails to pay tax within the time limit as prescribed according the tax law, or a withholding agent fails to remit tax within the time limit as prescribed according the tax law, the tax authorities shall, in addition to ordering the taxpayer or withholding agent to pay or remit the tax within the prescribed time limit, impose a surcharge on a daily basis at the rate of 0.05% of the amount of tax in arrears, commencing on the day the tax payment is in default. 1.7.3 Tax reduction or exemption A taxpayer may submit a written application for tax reduction or exemption to the tax authorities in accordance with the law or administrative regulations. Applications for tax reduction or exemption shall be examined and approved by the authorities designated for examination and approval of tax reduction or exemption as prescribed in the law or the administrative regulations. The decisions on tax reduction or exemption made by the People's Governments at various levels, entities or individuals without authorization in violation of the law or the administrative regulations shall be null and void. Any taxpayers that are eligible for the tax reduction and exemption as regulated by laws and administrative regulations or as approved by the legal examination and approval authorities shall go to the competent tax authorities to complete the procedures for tax reduction and exemption with the relevant documents. The tax payments shall be restituted from the next day after the expiry of tax reduction and exemption. Where the conditions for tax reduction and exemption change, the taxpayers that enjoy the preference of tax reduction and exemption shall report such changes to the competent tax authorities within 15 days as of the day when these changes occur; where the taxpayers are not subject to the conditions for tax reduction and exemption any more, they shall perform the tax liabilities in accordance with the law; where such taxpayers fail to pay taxes in accordance with the law, the tax authorities shall recover such taxes. 1.7.4 Assessment of tax In the event that one of the following circumstances should arise in respect of a taxpayer, the tax
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authorities shall have the right to assess the amount of tax payable by the taxpayer:   Accounting books may not be kept in accordance with laws and administrative regulations; Accounting books that are required to keep by Laws and administrative regulations have not been kept;  Without approval, taxpayers destroy accounting books or refuse to provide tax-related documents;  Although accounting books have been kept, the accounting entries have not been entered in an appropriate manner or the information on costs, receipt vouchers and expense vouchers are incomplete, causing difficulties in conducting an audit;  A taxpayer who is obligated to pay tax fails to go through tax filing procedures within a prescribed time limit and, after having been ordered by the tax authorities to file tax returns within the prescribed time limit, still fails to file the tax returns within the prescribed time limit; and  Taxpayers declare tax base that is markedly low without justification.

Where any taxpayers are subject to one of the conditions that are listed above, the tax authorities shall be entitled to check and ratify the amount of payable taxes of such taxpayers by using one of the following measures:  Check and ratify the amount of payable taxes by reference to the tax burden levels of the taxpayers in the congener or similar industries of the same place with the similar operation scales and income levels;  Check and ratify the amount of payable taxes in accordance with the measures of operation incomes or cost plus the reasonable fees and profits;  Check and ratify the amount of payable taxes through the extrapolation or calculation based on the raw materials, fuels and power that are consumed; and  Check and ratify the amount of payable taxes in accordance with any other reasonable measures. Where it is not enough to accurately check and ratify the amount of payable taxes by using one of the measures that are listed in the preceding paragraph, two or more measures may be taken simultaneously. Where any taxpayers have any objections to the amounts of payable taxes that are checked and
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ratified by the tax authorities by using above measures, such taxpayers shall provide the relevant evidences and the amount of payable taxes shall be adjusted after the tax authorities verify these evidences. 1.7.5 Tax guarantee measure Where the tax authorities have grounds for deeming that a taxpayer engaged in production or business operations has evaded taxes, the tax authorities may, prior to the prescribed date of the tax payment, charge the taxpayer to pay the tax payable within the prescribed time limit. In the event that the tax authorities discover that there are evidences that the taxpayer has transferred or concealed its taxable commodities, goods and other property, or taxable income within the prescribed time limit, the tax authorities may charge the taxpayer to provide a guaranty for tax payment. If the taxpayer is unable to provide a guaranty for tax payment, the tax authorities may, upon approval of the Director of the tax authority above the county level, take the following measures to guaranty the tax revenue:  Notify in writing the banks or other financial institutions in which the taxpayer has opened an account to freeze the taxpayer's deposits of an amount equivalent to the amount of tax payable; and  Impound or seal up the taxpayer's taxable commodities, goods or other properties, the value of which are equivalent to the amount of the tax payable. In the event that the taxpayer makes the tax payments within the time limit, the tax authorities must immediately relieve the measures of guarantying tax revenue. Should the taxpayer fail to make the tax payments at the expiration of the time limit, the tax authorities may, upon approval of the Director of the tax authority above the county level, notify in writing the banks or other financial institutions in which the taxpayer has opened an account to withhold and remit the amount of tax payable from the taxpayer's deposits that were frozen, or sell by auction or by sale the commodities, goods or property which have been impounded and use the gains from the auction or sale to make good the amount of tax payable . Housing and necessities needed for the daily life of individuals and their supported dependents shall not be included into the scope of the tax guarantee measures. The automobiles, jewelry, antiques and paintings, luxurious houses or any other houses more than
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one shall not belong to the housing and necessities needed for the daily life of individuals and their supported dependents. The tax authorities shall not take the tax guaranty measures and enforcement measures on any other living commodities that the unit prices are less than RMB 5,000. 1.7.6 Tax mandatory enforcement measure Where a taxpayer engaged in production or business operations or a withholding agent, fail to pay or remit tax within the prescribed time limit, or a tax payment guarantor fails to pay the guaranteed amount of tax within the prescribed time limit, the tax authorities shall charge them to pay the tax within a prescribed time limit. In the case of failure to pay the tax within the prescribed time limit, the tax authorities may, upon approval of the Director of the tax authority above the county level, take the following mandatory enforcement measures:  Notify in writing the banks or other financial institutions in which the taxpayer, withholding agent or tax payment guarantor has opened an account to withhold and remit the amount of tax from its deposits; or  Impound, seal up or sell by auction the commodities, goods, or other properties of the taxpayer, withholding agent or tax payment guarantor, the value of which is equivalent to the amount of tax payable, and use the gains from the auction to make good the amount of tax payable. Housing and necessities needed for the daily life of individuals and their supported dependents shall not be included into the scope of the tax enforcement measures. 1.7.7 Tax refund In case a taxpayer has overpaid taxes, the tax authorities upon discovery should immediately return the exceeding tax payment to the taxpayer. And if the taxpayer discovers the mistake within three years after the settlement of the tax payment, it may make a refunding claim to the tax authorities for the exceeding payment plus the interest at the rate of a bank deposit of the same term. There is a certain time limit to tax refund for those overpaid taxes:  In case the taxpayer discovered the mistake, a tax refunding claim could be made within three years after the settlement of the tax payment.  In case the tax authorities discovered the mistake, the law of the Administration of Tax
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Levying does not stipulate the time limit. It is presumed to be indefinite if tax law does not set deadline. Therefore, the tax authorities should refund the overpayments to taxpayer no matter how long the time is. 1.7.8 Tax supplement In the event that a taxpayer or a tax withholding agent has not paid or has underpaid tax owing to part of the mistake made by tax authorities, the tax authorities may ask the taxpayer or the withholding agent to pay the tax within three years but no surcharge shall be imposed on the underpayment. However, if a taxpayer or withholding agent fails to pay tax or underpay tax due to its own faults, such as making an erroneous calculation, the tax authorities may, within 3 years, pursue the levying of the tax in arrears and late payment interest. The period of pursuing the levying of the tax in arrears may be extended to 5 years when the accumulative amount of erroneous. In case of tax evasion, tax refusal and tax cheating, the tax authorities shall not be restricted by the time limit in pursuing for payment of tax unpaid or underpaid, the late payment interest or amount of tax so cheated. 1.8 THE SETTLEMENT OF THE TAX DISPUTE Tax administrative review and tax administrative proceeding are both major means to deal with the disputes concerning tax administration, but the cases belong to the scope of tax administrative review are tried by the tax authorities at one level higher than the original authorities which have tried the cases; while the cases belong to tax administrative prosecution are heard by administrative tribunal established in court. 1.8.1 Tax administrative review Tax administrative review is the activity of the parties (taxpayer, withholding agent or tax payment guarantor) consider any specific administrative actions of tax authorities has infringed upon their legal rights and interests, and apply to the tax authorities at a higher level or local governments (reconsideration organs) for reconsideration in conformity with law, then reconsideration organs make the decisions of maintaining, changing, revoking the tax specific administrative actions made by original tax authorities. (1) The reconsideration organs For dissatisfaction with specific administrative acts of offices of SAT of each level, applications
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for administrative review shall be filed with the superior offices of SAT. In respect of dissatisfaction with specific administrative acts of local tax bureaus of each level, applications for administrative review may be filed with the superior local tax bureaus or the governments at the same level with and governing such local tax bureaus. In respect of dissatisfaction with specific administrative acts of the SAT, applications for administrative review may be filed with the SAT. (2) The scope of Taxation Administrative Review Administrative review organs shall accept the following applications for administrative review lodged by applicants due to dissatisfaction with any of the following specific administrative acts of tax authorities:  Acts of collecting tax, including confirmation of taxpayer, tax target, scope of tax collection, tax cuts, tax exemptions, tax rebates, tax deductions, applicable tax rates, tax basis, tax links, tax period, tax location and tax collection methods and other specific administrative acts, collection of tax, additional collection of overdue fines, withholding acts and tax collection on behalf of tax authorities by withholding agents and units and individuals entrusted by tax authorities, etc.   Administrative licensing and administrative examination and approval acts. Acts of invoice administration, including issuing, revoking invoice and issuing invoice on behalf of enterprises, etc.   Guarantee measures and mandatory enforcement measures for tax collection. Acts of imposing administrative punishment, include (a) penalties, (b) confiscating properties and illegal proceedings, or (c) stopping right of export tax refund.  Acts of failing to perform the following duties: (a) issuing tax registry certificate, (b) issuing or providing duty paid certificate or tax administration certificate for outside operation activities, (c) administrative compensations, (d) administrative awards; or (e) acts of failing to perform duties in accordance with law.     Acts of certificating qualifications. Acts of failing to confirm tax security in accordance with law. Specific administrative acts in work of publicizing government information. Acts of assessing tax credit grade.
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

Acts of informing of entry and exit administration authorities to prevent leaving the country. Or



Other specific administrative acts.

1.8.2 Tax administrative proceeding Tax administrative proceeding is the activities of the parties (taxpayer, withholding agent or tax payment guarantor) consider that specific acts of tax authorities or their personnel have infringed their lawful interests, and institute proceedings to the administrative tribunals established in court for protecting their lawful interests. (1) First review and then administrative proceeding Applicants, who are dissatisfied with acts of collecting tax of tax authorities, shall first apply for administrative review to the administrative review organs and may lodge administrative proceedings if they are dissatisfied with decisions of administrative review. While, the applicants are dissatisfied with other specific administrative actions than collecting tax, they may apply for administrative review or directly appeal to the court. (2) The scope of tax administrative proceeding The scope of tax administrative proceeding is the scope of tax administrative dispute tried by administrative tribunal. The scopes of tax administrative proceeding are the dispute as follows:  The specific tax administrative actions which are in line with the scope of tax administrative review by and large;   The actions of personnel of tax authorities; and The review of reconsideration organs.

1.9 TAX EVASION AND TAX PLANNING 1.9.1 Tax evasion Tax evasion is the general term for efforts by individuals or entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability and includes in particular dishonest tax reporting, such as declaring less income, profits or gains than actually earned or overstating deductions. Tax evasion in broad sense includes tax evasion (in narrow sense), tax cheating and resisting tax.  Tax evasion (in narrow sense)
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Tax evasion in narrow sense means that a taxpayer or a withholding agent fails to pay/remit or underpays/under-remits the amount of tax payable by means of (a) forging, revising, concealing or destroying accounting books without authorization or supporting vouchers for the accounts, (b) overstating expenses or not stating or understating income in accounting books, (c) refusing to report even after being notified by the tax department, or (d) by filing fraudulent tax returns. For taxpayers who create tax evasion, the tax authorities shall seek the payment of amount of tax unpaid or underpaid as well as the late payment interest, and concurrently impose a fine of exceeding 50% but not exceeding five times of the amount of tax unpaid or underpaid. For those taxpayers constituting a crime, criminal responsibility shall be demanded for according to law.  Tax cheating

Tax cheating means a taxpayer cheats the export tax refund from the State by means of false declaration of exports or other deceitful means. For taxpayers who cheat tax, the tax authorities shall seek the payment of the tax refund so cheated and concurrently impose a fine of exceeding one time but not exceeding five times of the amount tax refund that was cheated. If his act constitutes a crime, his criminal responsibility shall be demanded for according to law. For those cheating for export tax refund from the State, the tax authorities may suspend to offer export tax refunds for them within the prescribed period.  Resisting tax

Resisting tax means a taxpayer refuses to pay tax by using violence or menace. In the case of resisting tax, the tax authorities shall, in addition to pursuing the payment of the amount of tax a taxpayer has refused to pay and the late payment interest, demand the criminal responsibility according to law. Where the case is so trivial that no offence has been committed, the tax authorities shall pursue the payment of the amount of tax the taxpayer has refused to pay and the late payment interest, and impose a fine of over one time but not more than five times of the amount of tax the taxpayer has refused to pay. 1.9.2 Tax planning To be continuing…

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