Laws of the People's Republic of China

the Ministry of Finance, the State Administration of Taxation

Circular of the Ministry of Finance and the State Administration of Taxation of the People's Republic of China on Adjusting and Improving the Policy on Excise Duties

Cai Shui [2006] No. 33

Departments (Bureaus) for Finance of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, State Administration of Taxation, Bureau for Finance of Xinjiang Production and Construction Group,

In order to fit in with the needs of objective development of the society, improve further the excise duty system, with the approval of the State Council, the item, rate and corresponding policies of excise duties shall be readjusted. Relative points are hereby informed as follows:

1.

About new added tax items:

(1)

Golf ball and its equipments, high-grade wrist watch, pleasure boat, throwaway wooden chopsticks, wooden floor are newly added items. The applicable tax rate is:

a.

The tax rate for golf ball and its equipments is 10 percent;

b.

The tax rate for high-grade wrist watch is 20 percent;

c.

The tax rate for pleasure boat is 10 percent;

d.

The tax rate for throwaway wooden chopsticks is 5 percent;

e.

The tax rate for wooden floor is 5 percent.

(2)

Cancel the tax items of petrol, diesel oil, add the tax item of processed oil. Petrol and diesel oil are changed to the specific items under the tax item of processed oil (the tax rate is still the same). In addition, five specific items are newly added, they are naphtha, solvent oil, lubricating, fuel oil and aviation kerosene.

a.

The applicable tax rate of above newly added specific items is:

(a) Naphtha, unit tax is 0.2 yuan / litre;

(b) Solvent oil, unit tax is 0.2 yuan / litre;

(c) Lubricating, unit tax is 0.2 yuan / litre;

(d) Fuel oil, unit tax is 0.1 yuan / litre;

(e) Aviation kerosene, unit tax is 0.1 yuan / litre.

b.

The conversion standard for measuring unit of above newly added specific items is:

(a) Naphtha, 1T= 1,385L;

(b) Solvent oil, 1T = 1,282L;

(c) Lubricating, 1T = 1,126L;

(d) Fuel oil, 1T = 1,015L;

(e) Aviation kerosene, 1T = 1,246L.

The conversion standard for measuring unit shall be set by Ministry of Finance and State Administration of Taxation.

2.

About taxpayer

An unit and individual that produce, manufacture as consignment and import above newly added consumer goods in the territory of the People's Republic of China is a taxpayer for excise duties and shall apply for paying excise duties according to Temporary Regulations of the People's Republic of China for Excise duties (Regulations in short below).

3.

About cancellation of tax items

Cancel the tax item of skin and hair care articles. List the tax item of high-grade skin care cosmetics originally subject to the tax item of skin and hair care articles under the tax item of cosmetics

4.

About adjustment of tax rate

(1)

Adjust the tax of cars

Cancel the specific item of Volkswagen, rover, small buses under the tax item of cars. Specific items of passenger vehicle and medium commercial buses are listed separately under the tax item of cars.

a.

Passenger vehicle

(a) Cylinder capacity (displacement, the same below) lower than 1.5L, the tax rate is 3 percent;

(b) Cylinder capacity higher than 1.5L to 2.0L (including 2.0L), the tax rate is 5 percent;

(c) Cylinder capacity higher than 2.0L to 2.5L (including 2.5L), the tax rate is 9 percent;

(d) Cylinder capacity higher than 2.5L to 3.0L (including 3.0L), the tax rate is 12 percent;

(e) Cylinder capacity higher than 3.0L to 4.0L (including 4.0L), the tax rate is 15 percent;

(f) Cylinder capacity higher than 4.0L, the tax rate is 20 percent.

b.

Tax rate for medium and light commercial buses is 5 percent.

(2)

Adjust tax rate of motorcycle.

The tax rate for motorcycle shall be set according to different displacement and grade:

a.

Cylinder capacity lower than 250ml(including 250ml), the tax rate is 3 percent;

b.

Cylinder capacity higher than 250ml, the tax rate is 10 percent.

(3)

Adjust tax rate of tyre.

Reduce the tax rate of tyre from 10 percent to 3 percent.

(4)

Adjust the tax rate of spirit.

Tax rate for both rice wine and tuber wine is uniformly set as 20 percent. Quota tax rate is 0.5 yuan / jin (500g) or 0.5 yuan /500ml. The measuring unit for quota tax shall be set according to the weight of actual sold product. If the measuring unit of the actual sold product is marked for size, 500ml shall be converted to 1 jin, shall not be converted according to the degree of wine.

5.

About tax base on a complete set bases

A taxpayer who sells taxable consumer goods produced on one's own together with purchased or own produced non-taxable consumer goods on a complete set bases, the tax base shall be total sales of a complete set product (excluding value added tax).

6.

About tax of using one's own produced naphtha for successive production of this enterprise

A production enterprise that uses one's own produced naphtha for successive production of petrol and other taxable consumer goods does not need to pay excise duties, for successive production of ethylene and other non-payable consumer goods or others, pay excise duties while transferring the use of them.

7.

About deduction of paid-up tax

The excise duties that have been paid for the materials are allowed to be deducted from payable excise duties:

(1)

Golf club that is produced by using the recalled tax-paid club head, body and handle as materials in the form of purchasing from others or processing deal.

(2)

Throwaway wooden chopsticks that are produced by using recalled tax-paid throwaway wooden chopsticks as materials in the form of purchasing from others or processing deal.

(3)

Wooden floor that is produced by using recalled tax-paid wooden floor as materials in the form of purchasing from others or processing deal.

(4)

The taxable consumer goods that are produced by using recalled tax-paid naphtha as materials in the form of purchasing from others or processing deal.

(5)

Solvent oil that is produced by using recalled tax-paid solvent oil as materials in the form of purchasing from others or processing deal.

Measures for management of tax deduction of tax-paid excise duties shall be worked out separately by State Administration of Taxation.

8.

About nationwide average rate of cost profit of newly added and adjusted tax

Nationwide average rate of cost profit of newly added and adjusted tax is set as follows:

(1)

10 percent for Golf ball and equipment;

(2)

20 percent for high-grade wrist watch;

(3)

10 percent for pleasure boat;

(4)

5 percent for throwaway wooden chopsticks;

(5)

5 percent for wooden floor;

(6)

8 percent for passenger vehicle;

(7)

5 percent for medium and light commercial vehicle.

9.

About export

Policy for tax rebate (exemption) for export of taxable consumer goods shall be handled according to adjusted tax rate, regulations and relative rules.

10.

About tax deduction and exemption

(1)

The excise duties of naphtha, Solvent oil, Lubricating, Fuel oil will be collected at 30 percent of the amount of taxable income. It defers to collect excise duties of Aviation kerosene.

(2)

Redial tyre is exempted from excise duties.

11.

Other corresponding issues

(1)

After the implementation of this circular, the taxable consumer goods subject to newly added, cancelled or adjusted tax rate that are returned back due to quality problems shall be implemented in accordance with the provisions of detailed rules of the regulation. The concrete measures shall be worked out separately by the State Administration of Taxation.

(2)

It doesn't need to pay an overdue tax for the taxable consumer goods subject to the tax range as prescribed in this circular stored by the commercial enterprises before March 31, 2006.

(3)

To the excise duties that any unit or individual has not paid, the competent taxation authority shall clear the tax in time in accordance with Tax Collection Management Law of the People's Republic of China and its detailed implementation rules.

(4)

The calculation of the amount of tax drawback for the export enterprises to purchase taxable consumer goods takes the tax amount clarified in the payment book for excise duties collection (special for export goods) as standard.

(5)

If the taxable export consumer goods purchased by export enterprises before March 31, 2006 will be exported after April 1, 2006, and the payment book for excise duties collection (special for export goods) was obtained, the tax drawback may still be handled according to the original tax rate. The implementation time shall take the issuing date of the payment book for excise duties collection (special for export goods) as standard.

12.

About the implementation time

This circular shall be implemented as of April 1, 2006. Following documents or regulations shall be abolished simultaneously.

(1)

Article 4 and 11 of About Distributing Circular for Annotation of Collection Range of Excise Duties ([1993] 153).

(2)

About Distributing Supplementary Circular for Annotation of Collection Range of Excise Duties (State Taxation [1994].026).

(3)

About Reply to Collection of Excise duties from CH1010 Mini Van and Etc.( [1994] 303)

(4)

Article 4 of Circular of State Administration of Taxation on Some Problems on Tax Collection of Excise duties ([1997] 84)

(5)

Article 1 and 2 of Reply of State Administration of Taxation to Collecting Excise Duties from Some Oil Products. ([2004] 1078

(6)

Reply of State Administration of Taxation to Collection of Excise duties from wagon car refitted from "Pika" ([2005] 217).

(7)

Reply of State Administration of Taxation to Collection of Excise Duties of MeiBaoLian Pure Stay and Etc. ([2005] 1231).

Appendix: Annotation of Newly Added and Adjusted Excise Duties(Omitted)

Ministry of Finance of the People's Republic of China

State Administration of Taxation

March 20, 2006