Laws of the People's Republic of China

State Administration of Taxation

Circular on Issues concerning Sorting out and Checking the Preferential Tax Policies of Development Zones

GuoShuiFa [2004] No. 9

January 16th, 2004

The administrations of state taxation and local taxation of all provinces, autonomous regions, municipalities directly under the Central Government, and cities directly under state planning:

In recent years, there have been, in some regions, issues of formulating preferential tax policies in excess of authority and of implementing them in violation of regulations, and of deducting or exempting taxes arbitrarily in the construction of development zones, and the issue is more serious in a few regions. With a view to strengthening and regulating taxation administration on development zones, firmly putting down and correcting issues of tax deduction or exemption in excess of authority, and maintaining the dignity and unification of the state tax law, so as to ensure the orderly construction of development zones and promote the healthy development of socialist market economy, the State Administration of Taxation determines to sort out and check the preferential tax policies of development zones according to the relevant provisions of the State Council, and hereby makes the following Circular on the relevant issues:

I.

The scope of sorting out and checking the preferential tax policies

1.

The economic and technological development zones, coastal economic opening zones, high and new technology industrial development zones and other state-level gardens and zones established upon the approval of the State Council;

2.

The various development zones established upon the approval of the provincial governments; and;

3.

The various development zones established by all levels of governments themselves under the provincial level.

II.

Contents of sorting out and checking the preferential tax policies

1.

Whether, in the development zones established upon the approval of the State Council, there are issues of granting preference tax on enterprises in excess of the provisions of the uniform policies of the state:

(1)

Whether an enterprise that enjoys preferential tax policies of development zones is registered in a development zone but operates its business outside the zone;

(2)

Whether the preferential tax is granted to an enterprise whose qualifications as a "newly-established enterprise" hasn't been examined strictly; or

(3)

Whether there are issues of enlarging the scope of application for preferential tax policies, increasing preferential proportion, or extending preferential terms without permission.

2.

Whether, in the various development zones established upon the approval of the provincial governments, there are issues of formulating preferential tax policies of development zones in excess of the power of taxation administration, or issues of enjoying state-level preferential tax policies of the development zones by reference. And

3.

Whether the various development zones established by all levels of governments themselves under the provincial level have any issue of illegally formulating preferential tax policies and enjoying preferential tax policies of development zones of the state level or provincial level by reference.

III.

Methods of sorting out and checking the preferential tax policies

The sorting out and checking of the preferential tax policies this time shall adopt methods of self-examination of the grass root tax authorities and selective examination by the upper level tax authorities. Before the end of March of 2004, the tax authorities of the cities (prefectures) or counties (districts) shall carry out self-examination and self-correction, which shall be checked and accepted by the provincial tax authorities. In the April of 2004, the State Administration of Taxation shall make selective examinations in the tax law enforcement inspection.

IV.

Requirements for the sorting out and checking of the preferential tax policies

1.

Improving understanding, earnestly strengthening the organization of and guidance to the work of sorting out and checking. It is an important act to carry out the sorting out and examination on preferential tax policies of development zones for practicing the important thought of "Three Represents", sticking to the principle of "gathering money for the state, enforcing law for the people", strengthening taxation administration, rectifying and regulating taxation order, and meeting with the requirements of the WTO. The tax authorities at all levels shall strengthen the concept of legal system and awareness to overall situation, strengthen organization and guidance earnestly, implement the system of top leader responsibility, and carry out the sorting out and checking work earnestly under the leadership of the departments of policy and regulation, with the coordination and cooperation of the relevant departments of taxation policy, taxation collection administration, foreign affairs, checking or supervisions, etc. Going through the motions is strictly prohibited in the sorting out so as to ensure the deepening of the inspection, and the downright sorting out, as well as getting actual effect.

2.

Performing duties, earnestly checking on, and strictly implementing the uniform preferential tax policies of development zones of the state. All levels of tax authorities shall immediately stop the enforcement of preferential tax policies of development zones formulated by the local regions in excess of authority, and propose to the organs thereof that they correct them, if the correction cannot be made temporarily, that shall be reported to the State Administration of Taxation level by level. Those preferential tax policies of development zones that are implemented in violation of regulations shall be corrected resolutely, and the taxes unpaid in the year 2003 shall be added to the original amount. Those enterprises that evade taxes or cheat in tax payment by availing themselves of the preferential tax policies of development zones shall be investigated into and punished by putting them on records according to law. In case the tax authorities fail to strictly implement the tax law, practice favoritism and malpractices, or are involved in breach of duty or derelict of duty, the responsible persons and the persons directly liable shall be punished seriously in accordance with the relevant provisions.

3.

All levels of tax authorities shall, according to the uniform disposition by the State Administration of Taxation, complete various tasks of sorting out and checking the preferential tax policies, summarize them earnestly, and report the situations to the State Administration of Taxation according to the facts. Each region shall report the summary of the work of sorting out and checking and the statement thereof to the State Administration of Taxation (department of policies and regulations) before the end of March of 2004.

Annex: Statistical Form of the Situations on Sorting out and Checking the Preferential Tax Policies of Development Zones (Omitted)