Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation Concerning Issuing and Distributing the Provisions for Some Specific Questions on Value-added Tax

GuiShuiFa [1993] No.154

December 28, 1993

The tax bureaus of various provinces, autonomous regions and municipalities directly under the Central Government, tax bureaus of various municipalities separately listed on the State plan:

"Provisions for Some Specific Questions on Value-added Tax" is now printing and issuing to you, please carry out seriously. Attachment:Provisions for Some Specific Questions on Value-added Tax

1.

Scope of Taxation

(1)

Value-Added tax shall be levied on forward transactions in goods (including commodity futures and precious metal futures).

(2)

Value-Added Tax shall be levied on the business of selling gold and silver by banks.

(3)

Value-Added Tax shall not be levied on financing and leasing businesses, whether or not ownership of the leased goods is transferred to the lessee.

(4)

For precast concrete components, other structural components or building materials produced by a factory or workshop affiliated to an infrastructure construction unit or an enterprise engaged in construction and installation and used on construction projects of that unit or enterprise, Value-Added Tax shall be levied at the time when the products are transferred for use. But for precast components produced at the construction sites and used directly on construction projects of that unit or enterprise, no Value-Added Tax shall be levied.

(5)

Value-Added Tax shall be levied on sales of dead articles in pawn for pawn business and sales of consignment goods on behalf of consignors for consignment business.

(6)

Value-Added Tax shall not be levied on sales of original copy of cinematographic films, video tapes and audio tapes arising from the transfer of ownership of copy-right as well as sales of computer software arising from the transfer of the ownership of patented technology or non-patented technology.

(7)

Value-Added Tax shall not be levied on the supply or extraction of unprocessed natural water (such as the supply of water from a reservoir for agricultural irrigation and the self-extraction of underground water by a factory for use in production).

(8)

Value-Added Tax shall levied on sales of philately stamps and first day covers by postal departments.

(9)

Value-Added Tax shall be levied on the business of sewing.

2.

Basis of Tax Computation

(1)

Deposits collected by a taxpayer on packaging materials leased or lent out in the sales of goods and that are recorded and accounted for separately are not included in the sales amount for tax levy. But for deposits that are not to be returned as the packaging materials are not collected when due, Value-Added Tax shall be levied at the tax rate applicable to the packaged goods.

(2)

For taxpayers adopting the method of selling goods at a discount, if the sales amount and the discount amount are separately specified on the same invoice, Value-Added Tax can be levied on the sales amount after deducting the discount. If the discount amount is specified on a separate invoice, the discount amount shall not be deducted from the sales amount, no matter how the financial treatment is handled.

(3)

For taxpayers adopting the method of selling goods by exchanging new products for old ones, the sales amount shall be determined based on the selling price of the new products in the same period.

For taxpayers adopting the method of selling goods for repayment of principals, the expenditures on principal repayment shall not be deducted from the sales amount.

(4)

In case the sales amount of a taxpayer is determined on the basis of the composite assessable value according to the regulations as its selling prices are obviously low or no selling prices are available, the cost plus margin rate in the composite assessable value formula shall be 10%. However, for goods on which a Consumption Tax shall be levied at a rate on price value method, the cost-plus margin rate in the composite assessable value formula shall be the cost plus margin rate prescribed in the .

3.

Thresholds for Small-scale Taxpayers

(1)

"Sales amount" mentioned in Article 24 of the Detailed Rules concerning the threshold for small-scale taxpayers refers to the sales amount for the small-scale taxpayers prescribed in Article 25 of the said Detailed Rules.

(2)

"Taxpayers engaged principally in the production of goods or the provision of taxable services and also in wholesaling or retailing of goods" mentioned in Article 24 of the Detailed Rules refer to those type of taxpayers whose sales amount from sales of goods and taxable services exceeds 50% of total annual taxable sales amount, while the sales amount of wholesaling and retailing businesses makes up less than 50%.

4.

Businesses with a fixed establishment selling goods in a different county (or city) shall apply for the issuance of an outbound business activities tax administration certificate from the local tax authorities where the establishment is located and shall report and pay tax with the local tax authorities where the establishment is located. Businesses selling goods and taxable services in a different county (or city) without the outbound business activities tax administration certificate issued by the local tax authorities where the establishment is located, the local tax authorities where the sales activities occur shall impose a tax at the uniform tax rate of 6%. After the sale amount is brought back to the place where the establishment is located, the sale amount arose in the selling places shall still have to be reported and subject to tax in accordance with the provisions. The tax paid in the selling place shall not be deducted from the amount of tax payable of the period.