Laws of the People's Republic of China

The State Administration of Taxation

Circular of the State Administration of Taxation on Sorting out and Checking the Preferential Policies on Enterprise Income Tax and the Implementation Thereof

GuoShuiFa [2002] No.127

September 30, 2002

In order to implement the requirements of the National Conference for Revenue Increase and Expenditure Reduction, carry out the uniform deployment of the State Administration of Taxation and strengthen the administration on the collection of enterprise income tax, we have decided to sort out and check the preferential policies on enterprise income tax and the implementation thereof. We hereby give our notice as follows regarding the relevant work requirements:

I.

The Significance to Fully Recognize the Sorting out and Checking of the Preferential Policies on Enterprise Income Tax and the Implementation Thereof

The preferential policies on enterprise income tax are the incentive taxation measures made by the state according to the needs in the continuing, healthy and stable development of national economy as well as the overall target of macro-economic control. To earnestly implement the preferential policies on enterprise income tax, regulate and carry out the procedures for each link of the administration of the preferential policies on enterprise income tax are the inevitable requirements for doing well in the administration of enterprise income tax, guaranteeing the state macro-control policy to play its role, and promoting the continuing, healthy and stable development of the national economy under new conditions. At present, the overall situation for the tax authorities at all levels to implement the preferential policies on enterprise income tax is good. Basically, as required by the principle of administering tax by law, they can earnestly ensure the uniform implementation of the preferential policies on enterprise income tax, resist the act of unauthorizedly making preferential policies in violation of the uniform provisions, and continuously regulate the implementation procedures. However, there are also some problems in the implementation of the policies. For example, unauthorized preferential policies on enterprise income tax are make in some regions by exceeding of power, and in some regions the ascertainment of the qualification for a taxpayer to enjoy the preferential policies are not strictly controlled, the approval procedures are not normative, and the follow-up administration is not well done, and so on. Such problems have objectively led to the inconformity of the preferential policies on enterprise income tax with the standard of implementation, and impacted the active functions of the state macro-control policy.

In order to follow the principle of administering tax by law, rectify and regulate the taxation order, ensure the reform of the system for sharing revenue from income tax, and adapt to the needs in China's accession to the WTO, the tax authorities at all levels must adhere to the principle of administering tax by law, maintain the uniformity and the taxation policies and the regularity of implementation of the policies. Meanwhile, they shall earnestly implement the requirements of the National Conference for Revenue Increase and Expenditure Reduction, further strengthen their administration on tax collection, and guarantee the completion of the taxation task of the whole year. To meet the above requirements, it is indeed necessary to carry out the work of sorting out and checking the preferential policies on enterprise income tax, verify the taxpayers' qualifications to enjoy the preferential policies, stop the income tax reduction or exemption in excess of power, and regulate the procedures to implement the preferential policies. It is also an urgent task, therefore the tax authorities at all levels shall undertake this task from the point of view of politics and overall situation, and earnestly make achievements.

II.

Key Contents for Sorting out and Checking the Preferential Policies on Enterprise Income Tax and the Implementation Thereof

The main task is to sort out the regional preferential policies on enterprise income tax which are discretionally made in all places out of the uniform taxation policies of the state, and to check whether the qualifications for the enterprise income tax payers to enjoy the preferential policies and the procedures for the administration of tax reduction or exemption conform to the relevant provisions. The main contents are as follows:

(a)

New- and high-tech enterprises. Whether the enterprises enjoying the preferences on tax reduction or exemption meet the conditions for new- and high-tech enterprises, and whether they have passed the annual inspection according to the relevant provisions; whether the new- and high-tech enterprises out of a national new- and high-tech industry development zone are enjoying the preferential policies by taking the opportunity; whether the non-new- and high-tech enterprises within a national new- and high-tech industry development zone are enjoying the income tax reduction or exemption; whether the period for tax reduction or exemption conforms to the relevant provisions; whether the tax rates are implemented in accordance with the relevant provisions; and so on.

Whether the software enterprises hold the certifications issued by the relevant department; whether the tax authorities have participated in the annual inspection; whether the proportion of technical professionals and that of sales income in the software enterprises meet the stipulated conditions; whether the profit years of the software enterprises have been verified; whether the software enterprises were established after July 1, 2000.

(b)

Newly-established enterprises of the tertiary industry. Whether the enterprises of the tertiary industry which enjoy the preferential policies on income tax meet the standards on newly-established enterprises; whether the newly-established financial, insurance and real estate enterprises are included in the scope of tax exemption; whether the income from the operation of the means of production in the agricultural production and service industry is under reduction or exemption of tax; whether the income of scientific research entities or universities and colleges from technical consulting, development, service or transfer of technologies meet the policy standards, and whether they are under the management by technology market; whether the income of the scientific research entities or universities and colleges not meeting the conditions on preferences is under tax reduction or exemption; whether non-consulting enterprises enjoy reduction of income tax in contrast with consulting enterprises; whether the period for tax reduction or exemption conform to the relevant provisions; and so on.

(c)

Employment service enterprises. Whether the proportion of people given new jobs conforms to the relevant provisions; whether the above said people exceed the scope stipulated in the present policies; whether any of the employment service employees holds his post in more than one enterprise; whether the period for tax reduction or exemption conform to the relevant provisions; whether there is any enterprise of false cessation of business or false new establishment enjoying repeated preferential policies; and so on.

(d)

School-run enterprises. Whether the enterprises enjoying income tax preferences meet the conditions for school-run enterprises; whether they are invested and run by the school or affiliated to other enterprises or associated with other enterprises or individuals; whether they are subject to contracted, leased or transferred operation; whether the schools are directly responsible for the operation and management; how the income from operation is distributed; whether they are school-run plants or farms; whether income tax is reduced or exempted from the income of the school publishing houses, stores or construction companies; whether the schools establishing the enterprises are regular schools set up by the educational department; whether the ascertainment and annual inspection on the preferential policies are regular, and whether the tax authority has participated in the annual inspection, and so on.

(e)

Enterprises of social welfare. Whether the proportion of disabled people given jobs conforms to the relevant provisions; whether the disabled employees have their proper work positions; whether any of the disabled employees concurrently holds posts in more than one enterprise; whether the name list of enterprise employees, the table of wages, the table of posts held by the disabled employees, the appraisal of disability and the table on the use and distribution of profits and taxes are set up; whether they have been annually inspected, and so on.

(f)

Other relevant preferential policies. It is emphasized to sort out and check the conditions for enjoying the preferential policies.

(g)

Whether the administration of tax reduction or exemption is included in the regular administration of income tax; whether the procedure and scope of power for the administration of tax reduction or exemption conform to the relevant provisions in the Measures on the Administration of Reduction or Exemption of Enterprise Income Tax (GuoShuiFa [1997] No.99); whether the statistics on tax reduction or exemption in all places have been timely submitted; whether the income tax of the newly-established enterprises in former revolutionary base areas, in areas of minority nationalities, in remote and border areas and poverty-stricken areas and that of the enterprises established by the Central Government which enjoy tax reduction or exemption due to heavy natural disasters are reported to the State Administration of Taxation pursuant to the scope of the approval power.

All provinces, autonomous regions, municipalities directly under the Central Governments and municipalities separately listed on the State plan may, in combination with their respective local situations, increase and detail the above said key contents for sorting out and checking the preferential policies.

III.

Overall Requirements for Sorting out and Checking the Preferential Policies on Enterprise Income Tax and the Implementation Thereof

(a)

The tax authorities shall strictly implement the state's uniform preferential policies on enterprise income tax. The preferential policies on income tax which are discretionally made by any local government in excess of its power and in violation of the state's uniform policies shall be immediately ceased from implementation, and the discretionally made preferential policies on income tax which were cancelled in the last year shall not be recovered. The tax authorities shall, through normal avenues, request the local governments to correct their discretionally made preferential policies on income tax. In case such policies cannot be corrected, the tax authorities shall report to the financial and taxation departments under the State Council level by level. Any local government that does not cease implementing its discretionally made preferential policies on income tax after the receipt of the present notice shall be imposed on a circularized criticism and the persons involved shall be punished in accordance with the relevant provisions.

(b)

The leaders of the tax authorities at all levels shall pay sufficient attention to sorting out and checking the preferential policies on enterprise income tax and the implementation thereof, and shall make uniform arrangements and considerate deployment as well as take prompt measures and select excellent functionaries to do well in the relevant work. The tax authorities at all levels shall earnestly undertake their responsibilities and carry out the whole-process administration, improve revenue by sorting out and checking the preferential policies, and timely arrange the tax amount to be put into the state treasury. They shall also timely report the problems in sorting out and checking the preferential policies to the State Administration of Taxation.

(c)

When sorting out and checking the preferential policies, the tax authorities shall strictly follow the principles of administering tax by law and seeking truth from facts, and regard the present uniform policies and presently stipulated procedures as the basis. The tax authorities shall guarantee the implementation of the preferential policies on income tax stipulated by the state, reduce and exempt taxes in accordance with the law, and guarantee the taxpayers' lawful rights and interests in respect of taxation. With respect to the enterprises which are enjoying the preferential policies on income tax, the tax authorities shall strictly verify one by one whether they meet the conditions for enjoying the income tax preferences, and shall cancel the qualification of those unqualified to enjoy the preferential policies on income tax, and levy the reduced and exempted tax as well.

(d)

The work of sorting out and checking the preferential policies will be started in October and ended in the middle of December. After the end of this work, the tax authorities shall carefully review the work they have done and make written reports, stating the measures they have taken, the previous preferential policies on enterprise income tax, the problems existing in the implementation, methods for improvement, and the actual effects they have made, and shall fill out the Statistics on Sorting out and Checking the Preferential Policies on Enterprise Income Tax and the Implementation Thereof, which is attached to the present notice. The tax authorities shall, by the end of December, submit the review reports and the statistics to the State Administration of Taxation in the form of official documents.

Attachment:

Statistics on Sorting out and Checking the Preferential Policies on Enterprise Income Tax and the Implementation Thereof(Omitted)