Shanghai Jerry Group Inc. - China Business Consultants

Detailed Rules and Regulations for the Implementation of the Provisional Regulations of the People's Republic of China on Consumption Tax

Article 1 These Detailed Rules are formulated in accordance with stipulations of Article 18 of "Provisional Regulations of the People's Republic of China on Consumption Tax" (hereinafter referred to as "the Regulations").

Article 2 "Units mentioned in Article 1 of the Regulations refer to State-owned enterprises, collectively-owne d enterprises, privately owned enterprises, joint- stock enterprises, other enterprises, administrative units, institutions, military units, social organizations and other units.

"Individuals" mentioned in Article 1 of the Regulations refer to individual business operators and other individuals.

"Within the territory of the People's Republic of China " mentioned in Article 1 of the Regulations refers to the fact that places of despatch or the locations of the consumer goods produced, contract processed and imported which shall be chargeable to Consumption Tax (hereinafter referred to as "tax -able consumer goods ") are in the territory.

Article 3 Specific scope of taxation for taxable consumer goods stated in the attached to the Regulations shall be determined in accordance with < Explanatory Notes for Scope of Taxation of Consumption Taxes> attached to these Detailed Rules

Selling price (excluding Value Added Tax to be collected from the purchaser, the same definition below ) of each big box (fifty thousand sticks, the same definition below ) is 780 yuan or more, tax shall be chargeable in accordance with the tax rate of Grade A cigarettes; selling price of each big box is less than 780 yuan, tax shall be chargeable in chargeable in accordance with the tax of Grade B cigarettes.

Article 4 "Taxpayers dealing in taxable consumer goods with different tax rates" mentioned to in Article 3 of the Regulations refer to taxpayers producing and selling taxable consumer goods with more than two applicable tax rates.

Article 5 For taxable consumer goods which are "produced by the taxpayer and shall be subject to tax upon sale s" mentioned in Article 4 of the Regulations refer to the transfer of the proprietary rights of taxa ble consumer goods with compensation, that is, transfer of taxable consumer goods on the condition of receiving cash , goods, services or other economic benefits from the transferee.

Article 6 "Self-produced taxable consumer goods for the taxa pyer's own use in the continuous production of tax able consumer goods " mentioned in Article 4 of th e Regulations refer to taxable consumer goods whic h are used as direct materials for the production of final taxable consumer goods and which constitu te a substance form of the final product.

"For other use" refers to the use of taxable consu mer goods by taxpayers for the production of non-t axable consumer goods; for construction in process , administrative departments and non-production in stitutions and provision of services; and taxable consumer goods used as donations, sponsor, fund-ra ising, advertising , samples, staff welfare, awards , etc.

Article 7 "Taxable consumer goods sub-contracted for process ing" mentioned in Article 4 of the Regulations ref er to processed taxable consumer goods for which t he principal provides raw materials and major mate rials and for which the contractor only receives p rocessing fees and supplying part of auxiliary mat erials for processing, Taxable consumer goods prod uced with raw materials provided by the contractor , processed by the contractor with raw materials f irstly sold to the contractor by the principal, an d produced by the contractor with raw materials bo ught under the name of the principal shall not be regarded as taxable consumer goods contracted for processing but shall be regarded as sales of self- produced taxable comsumer goods subject to Consump tion Tax regardless of whether or not taxpayers tr eat them as sales in their accounts.

Consumption Tax shall not be levied on taxable con sumer goods contracted for processing which are fo r direct sale.

Article 8 In accordance with provisions of Article 4 of the Regulations, the time when the liability to pay Co nsumption Tax arises is as follows:

1.For taxpayers selling taxable consumer goods, th e time when the liability to pay tax arises is:

a. For taxpayers adopting the settlement methods o f selling on credit and receipt by instalments. th e time when the liability to pay tax arises shall be the day of the day of collection as stipulated in the sales contract.

b. For taxpayers adopting the settlement method of receipt in advance, the time when the liability t o pay tax arises is the day on which the taxable c onsumer goods are delivered.

c. For taxpayers adopting the method of entrusted for collection or entrusted with the banks for col lection, the time when the liability to pay tax on the sale of taxable consumer goods airses is the day when the taxable consumer goods are delivered and the procedure for entrusted collection are com pleted.

d. For taxpayers adopting other methods of settlem ent , the time when the liability to pay tax arise is the day when they have received the sales paym ent or the evidence to obtain the sales payment.

2. For taxpayers using self-producing taxable cons umer goods , the time when the liability to pay ta x arises is the day of transfer for use.

3. For taxable consumer goods contracted for proce ssing by taxpayers, the time when the liability to pay tax arises is the day of receiving the goods by the taxpayer.

4. For taxable consumer goods imported by taxpayer s, the time when the liability to pay tax arises i s the day of import customs declaration.

Article 9 "Sales volume" mentioned in Article 5 of the Regul ations refers to volume of taxable consumer goods which is further specified as follows:

1. For the sale of taxable consumer goods, it is t he sales volume of the taxable consumer goods.

2. For own usage of self-producing taxable consume r goods, it is the volume of the taxable consumer goods transferred for use.

3. For taxable consumer goods contracted for proce ssing, it is the volume of taxable cusumer goods c ollcted back by the taxpayers.

4. For imported taxable consumer goods, it is the tax assessable volume for import of taxable consum er goods certified by the customs office.

Article 10 For taxable consumer goods whose tax payable shall be calculated according to the amount on volume m ethod, the conversion standard of the measurement units shall be as follows:

1.Beer        1 ton = 988 litres

2.Yellow wine    1 ton = 962 litres

3.Gasoline    1 ton = 1388 litres

4.Diesel oil    1 ton = 1176 litres

Article 11 Pursuant to the stipulations of Article 5 of the R -cgulations, tor taxable consumer goods sold by ta xpayers where the sales amounts are settled in for eign currencies, the Renminbi conversion rate for the sales amount to be selected can be the State o fficial foreign exchange rate (the mid-rate in pri nciple) quoted on the day of settlement or the fir st day of that month, Taxpayers shall determine in advance the conversion rate to be adopted, once d etermined, no change is allowed within one year.

Article 12 "Sales amount " mentioned in Article 6 Regulations does not include Value-added Tax that shall be co llected from the purchasers. If the amount of Valu e-added Tax has not been deducted from the sales a mount of the taxable consumer goods, or if the pri ce and the amount of Value-added Tax are jointly collected because the special invoice of Value-adde d Tax shall not be issued by the taxpayers , it shall be converted into sales amount excluding the a mount of Value-added Tax for computing the Consump tion Tax. The conversion formula is:

Sales amount of taxable consumer goods = (Sales amount including VAT) /         (1 + VAT rate or levy rate)

Article 13 If taxable consumer goods with the tax payable com puted under the rate on value method are sold toge ther with the packaging, the packaging shall be in cluded in the sales amount of the taxable consumer goods for the levy of Consumption Tax regardless of whether or not the packaing is priced individua lly and regardless of how it is computed in the ac counts. If packaging is sold along with products w ithout being priced but with a deposit obtained, s uch deposit item shall not be included in the sales amount of taxable consumer goods for tax levy, H owever, deposits which are not refunded because th e packaging is not returned within a time limit or are received for more than one year shall be incl uded in the sales amount of taxable consumer goods and be subject to Consumption Tax according to th e applicable Consumption Tax rate.

In cases where the packaging has been priced when sold along with taxable consumer goods and deposit s have been received in addition, the amount shall be included in the sales amount of the taxable co nsumer goods and be subject to Consumption Tax acc ording to the applicable Consumption Tax rate if t he packaging not returned by taxpayers. within a designated time limit.

Article 14 "Other charges" mentioned in Article 6 of the Regu lations refer to other funds. fund raising charges , profits returned, subsidies, damages on breach o f contract (interest on deferred payment ), handing charges, packaging fees, contingency charges, qu ality charges, freight and loading and unloading c harges, commissioned payments and charges of any o ther nature which are in addition to the price charged, But the following amounts shall not be included:

1. A freight invoice of transportation organizations is issued to the purchasers.

2. The same invoice that is forwarded by the taxpa yer to the purchasers.

All other charges, regardless of whether or not th ey are income of the taxpayer, shall be included i n the sales amount in computing the tax payable.

Article 15 "The selling price of similar consumer goods" ment ioned in Article 7 and Article 8 of the Regulation -s refers to the selling price of similar consumer goods sold in that month by taxpayers or withhold ing agents, If the selling prices of similar consu mer goods vary in various periods within that month, tax shall be computed according to the sales volume on weighted average basis. However, the sale s of taxable consumer goods shall not be computed under weighted average in one of the following conditions:

1. The selling price is obviously low and without proper justification;

2. There is no selling price.

If there is no sales or if sales has not been comp leted in that month, tax shall be paid according t o the selling prices of similar consumer goods of last month or the most recent month.

Article 16 "Cost" mentioned to in Article 7 of the Regulation s refers to the product production cost of taxable consumer goods.

Article 17 "Profit " mentioned in Article 7 of the Regulation s refers to profit computed according to national average cost-plus margin rate of taxable consumer goods. National average cost-plus margin rate of t axable consumer goods shall be determined by the S tate Administration of Taxation.

Article 18 "Cost of material" mentioned in Article 8 of the R egulations refers to the actual cost of processing materials provided by contractor.

Taxpayers contracted taxable consumer goods for pr ocessing must truthfully mdicate the cost of mater ial in the contract processing contracts (or provi de in other forms). In cases where no cost of mate rial is provided, the local competent tax authorit ies of the contractor shall have the right to dete rmine the cost of material.

Article 19 "Processing fee" mentioned in Article 8 of the Re guations refers to all fees the contractor receive d from the principal for the processing of taxable consumer goods (including the actual cost of auxi liary materials paid under commissioned payments).

Article 20 "Customs dutiable value" mentioned in Article 9 of the Regulations refers to the customs dutiable va lue determined by the customs office.

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

1. Dutiable value for Grade A cigarettes and white spirits made from cereal shall be determined by t he State Administration of Taxation.

2. Dutiable value for other taxable consumer good shall be determined by the local tax bureaus direc tly under the State Administration of Taxation.

3. Dutiable value for imported taxable consumer go ods shall be determined by the customs office.

Article 22 "As otherwise determined by the State Council" men tioned in Article 11 of the Regulations refers to taxable consumer goods export of which is restrict ed by the State.

Article 23 If rejection by customs occurs on exported taxable consumer goods that has completed the tax refuns or tax exemption is allowed for the import of retu rned export goods from overseas, export customs de clarer shall report and pay back the amount of Con sumption Tax refunded timely to local competent ta x authorities.

In cases where tax exemption for direct exported t axable consumer goods has been completed by taxpay ers, rejection by customs occurs and exported good s are returnes from overseas, and if tax exemption is granted at the time of importation, the taxpay ers may defer to pay back the tax upon approval by the local competent tax authorities and pay back Consumption Tax to the local competent tax authori ties when the goods are transferred for domestic s ale in the territory.

Article 24 If taxable consumer goods sold by taxpayers are re turned by purchasers because of quality and other reasons, the amount of Consumption Tax paid may be refunded upon approval by local competent tax aut hortites.

Article 25 Pursuant to the provisions of Article 13 of the Re gulations, if taxpayers sell in other county(or ci ty )or appoint agent to sell in other county (or c ity) taxable consumer goods produced by the taxpay ers, the taxpayers shall pay Consumption Tax to wh ere the accounting is done or where the taxpayer i s located after the taxable consumer goods are sol -d.

If thhe taxpayer's head office and branch office a re not in teh same county (or city), Consumption T ax shall be paid at the location where the branch office produce the taxable consumer goods. However . upon approval by the State Administration of Tax -ation and the relevant local tax bureau, the Cons umption Tax payable of the branch office of the ta xpayer may be paid in consolidation by the head of fice to the local competent tax authorities where the head office is located.

Article 26 These Detailed Rules shall be interpreted by the M inistry of Finance or by the State Administration of Taxation.

Article 27 These Detailed Rules shall be implemented on the d ate the Regulatios are promulgated.