DECISION OF THE STATE COUNCIL ON CRACKING DOWN ON FRAUDS OF TAX REFUNDS FOR EXPORT AND PUNISHING ACTS VIOLATING LAW AND DISCIPLINE IN FINANCIAL AND TAX FIELDS

Decision of the State Council on Cracking Down on Frauds of Tax Refunds for Export and Punishing Acts Violating Law and Discipline in Financial and Tax Fields

For recent two years, a series of policies and measures of the central
authority on strengthening and improving macro regulation have been enforced
and have achieved obvious effect, the economic order continues to take a turn
for the better. However, with the deepgoing development of the struggle of
rectifying the economic order and fighting against unlawful and criminal
activities, some quite serious problems in financial and tax fields are also
exposed. For examples, some enterprises in collusion with the fraud groups
cheat out of tax refunds for export and illegally buy foreign currency; some
financial institutions make "two accounts" to conceal the deposit or issue
loans against the provisions; some local governments without authorization
change the budgetary funds into extra-budgetary funds to escape from the
budget supervision, etc. These problems have become very serious at some
places and units. Therefore, the State Council decides to take resolute
measures to crack down on and punish frauds of tax refunds for export and
acts violating law and discipline in financial and tax fields, and carry out
strict provisions of control and supervision.

1. Arranging a special struggle to develop comprehensive inspection and to
investigate and punish a set of major and important cases

(1) The State Administration for Taxation shall jointly with the relevant
departments carry out a special struggle against the fraud activities of
taxes, and investigate and punish a set of typical cases. The departments of
tax, foreign economic relation and trade, customs, banking, foreign currency
control, public security, auditing, administration for industry and commerce
and administrative supervisory agency shall cooperate tightly, based on the
clues in hand, to organize and develop special struggles directly against
fraud of tax, fraudulent purchase of foreign currency and smuggling,
especially to investigate and punish all kinds of unlawful and criminal
activities of fraud of tax, fraudulent purchase of foreign currency and
smuggling by making false customs declaration form, false invoice and false
settlement document of exchange. Every competent department shall send
inspection group periodically to inspect in different places.

(2) The People's Bank of China shall make an overall check-up on non-bank
financial institutions and ban the illegally established financial
institutions; it shall carry out on-the-spot audit on the capital resource and
operation of commercial banks and completely check the problems such as
operation out of account, short sale of securities, malicious overdraw of
credit card and confused control of certificate of deposit.

(3) The Ministry of Finance shall take a comprehensive inspection on the
establishment and management of extra-budgetary funds, and take a complete
check-up on the cases like transferring the budgetary revenue into
extra-budgetary funds and not bringing it into budgetary management against
the relevant provisions, or expanding the collection scope of the
extra-budgetary funds, raising the collection standards and squandering the
extra-budgetary funds.

(4) The leadership of the special struggle shall be strengthened. The
major leaders of the people's government of province, autonomous region or
municipality directly under the central government and the competent
departments of the State Council shall take charge by themselves. All relevant
departments shall according to their duties stress the essentials and
cooperate tightly. All localities and departments shall strengthen the support
to the work of the procuratorial organ. All relevant departments and
procuratorial organs shall set up the working system of case transmission and
put an end to substituting administrative punishment for criminal penalty.

(5) All acts violating law and discipline in the above-said fields shall
be investigated and punished through developing the special struggle and
comprehensive inspection. Those who have violated law and discipline
concerning fraud, corruption, accepting a bribe, offering a bribe or
dereliction of duty shall be transmitted to the judicial department for
criminal responsibilities according to the law. When the cases of violations
of law and discipline are dealt with, the bounds of policy shall be grasped.
Those who can self-check actively and confess themselves may be punished
leniently; those who commit a crime or an offense against this Decision after
its promulgation shall be punished severely for all.

2. Strictly investigating and punishing acts violating law and discipline
according to the law and discipline

(1) Decision of the Standing Committee of the National People's Congress
on Punishing the Crime of Falsifying, Counterfeiting and Illegal Selling of
Invoices for Value-added Tax shall be carried out strictly to investigate and
punish severely the fraud activities of tax. If any enterprise or institution
is engaged in or take part in tax fraud or tax evasion, including falsifying
the invoices for value-added tax and evading paying tax by taking the few as
the more, exaggerating the price, counterfeiting or falsely declaring the
export, or taking the more as the few or posing as donation during
importation, once these are found, the person directly responsible shall be
discharged from public employment and the relevant person in charge shall be
discharged from his post; according to the law and judicial interpretation,
all those who defraud or evade tax payment more than 10,000 yuan shall be
transmitted to judicial department for criminal responsibility according to
the law. If the person responsible and business personnel of the enterprise or
institution intentionally commit fraud of tax refunds for export for the
interest of his own unit, he shall be punished for the crime of fraud or the
crime of fraud of tax refunds for export. If an enterprise commits fraud of
tax refunds for export and the circumstances are serious, its tax refunds for
export shall be suspended and its license for foreign trade operation shall be
revoked by the department of economic relation and trade. If the personnel of
the government agency causes a loss to the state revenue more than 50,000 yuan
for his dereliction of duty, the person directly responsible shall be imposed
upon disciplinary sanction no less lenient than record of a demerit, up to
discharge from public employment; the relevant person in charge shall be
imposed upon disciplinary sanction no less lenient than record of a demerit,
up to discharge from his post; all those who take part in fraud activities of
tax or cause substantial loss to the state revenue for his dereliction of duty
which constitutes a crime shall be transmitted to judicial department for
filing of the case and shall be investigated for criminal responsibility
according to the law. If the amount involved in the tax fraud is especially
huge, the circumstances are especially serious and the state has therefore
suffered especially heavy losses, the offender shall be subject to severe and
strict punishment according to the relevant decisions by the Standing
Committee of the National People's Congress.

(2) The Decision of the Standing Committee of the National People's
Congress on Punishment of the Crimes of Undermining the Financial Order and
the relevant laws shall be strictly carried out to crack down on illegal acts
and crimes in the financial field. If a financial institution, for the purpose
of escaping from the control of the credit scale, fails to bring the saving
and borrowing business of its sub-company or relevant business departments
into unified accounting and report to a high body, these business shall be
audited and brought into the unified accounting and the person in charge and
the person directly responsible shall be imposed upon disciplinary sanctions
according to circumstances and extent of danger. If a financial institution
violates the Accounting Law of the People's Republic of China to set up
another account out of the account and run the business against the
regulations, the chief person in charge shall be discharged from his post up
to discharged from the public employment; if the circumstances are serious,
heavy losses have been caused and a crime has been constituted, the chief
person in charge shall be investigated for criminal responsibility according
to the law, and the person in charge of higher authority shall be punished up
to discharge from post; if a local government instigates or obliges a
financial institution to set up another account out of the account and run the
business against the regulations, the relevant leaders of the local government
shall be investigated and punished up to discharge from post. If the
management in a financial institution is in slack, a major incident or several
incidents have happened and heavy losses have been caused, the chief person in
charge shall be discharged from his post; if the personnel of a financial
institution ignores his duty and a crime has been constituted, he shall be
transmitted to the judicial department for criminal responsibility according
to the law. If financial institutions collude with each other from both inside
and outside to be engaged in or take part in illegal acts and crimes in the
financial field, they shall be punished strictly and the relevant person in
charge shall be investigated and punished.

(3) If a designated foreign currency bank against the provisions sells
foreign currency without certificate, the person directly responsible shall be
imposed upon disciplinary sanctions: a. if the sale of foreign currency is
decided by the person handling the transaction, he shall be imposed upon
disciplinary sanctions and transferred from his post up to discharged from the
public employment; if the unit without certificate sells foreign currency
totally more than 1,000,000 US dollars, the relevant person in charge shall be
investigated and punished. b. if it is the person in charge of the unit who
approves or incites the person handling the transaction to sell foreign
currency without certificate, the person directly responsible shall be imposed
upon disciplinary sanctions and the relevant person in charge shall be
investigated and punished no less lenient than record of demerit up to
discharge from post; c. if the leader of a local government requires the bank
to sell foreign currency without certificate, the bank personnel shall be
dealt with and the relevant leader of the government shall be investigated and
punished no less lenient than record of demerit up to discharge from post.

The person in charge of a unit and the person directly responsible who are
engaged in or take part in arbitrage of foreign currency shall be dealt with
in the light of the above-said measures. If an enterprise or institution
unlawfully commits arbitrage of foreign currency totally more than 1,000,000
US dollars, the designated foreign currency bank shall stop selling foreign
currency to it and the department of foreign economic relation and trade shall
revoke its operation license for foreign trade.

If any of the above-said activities constitutes a crime, it shall be
transmitted to judicial department for criminal responsibility according to
the law.

(4) If anyone conceals the budget revenue or transforms the budgetary
funds into extra-budgetary funds, all the unlawful income shall be handed over
to the higher financial department. Besides, leaders of relevant departments
and the government at the same level shall be investigated and punished; if
the circumstances are serious, they shall be demoted up to discharge from
post; if they commit a crime for dereliction of duty, they shall be
transferred to judicial department for criminal responsibility according to
the law.

(5) Those enterprises and individuals who unlawfully carve the seals or
print the notes or certificates shall be punished strictly.

(6) As to those major cases which involve different provinces, autonomous
regions or municipalities directly under the central government, the
departments of public security and judicial affairs shall strengthen the
leadership and deal with the cases in unified coordination.

3. Strengthening the management and supervision system to stop up the
loophole of crimes

(1) Besides further improving the export tax policy, the departments of
taxation, banking, customs, foreign economic relation and trade and foreign
currency control shall, according to the relevant provisions of the State
Council, take the effective measures to set up a working system for constant
and close connection in order to strengthen the examination and management of
the receipts of tax refunds for export and prevent lawless persons from
counterfeiting receipts to commit tax fraud. The tax department shall
strengthen the management and audit of value-added tax invoices, continue to
distribute the value-added tax invoices within the limited quantity and manage
the invoice of huge denomination by making out it on the computer system. The
competent department of tax refund for export shall make the pre-examination
strictly and set up a cross audit system of computer network.

(2) The Law of the People's Republic of China on the People's bank shall
be carried out seriously. The people's bank at different level shall
concentrate on bettering the financial management and supervision. The banking
industry shall be operated separately from the industry of securities, trust
and insurance and shall be managed according to the law. The non-banking
institutions shall be re-examined, re-issued of certificate and re-registered.
The state-owned commercial banks shall, according to the requirements of the
Circular of the State Council Concerning the Approval and Transmission of the
Suggestions of the Chinese People's Bank on Disjointing the Chinese Industrial
and Commercial Bank and Three Other Banks with Subsidiary Trust and Investment
Companies (Document Guofa No.(1995)11 of the State Council), seriously better
the disjointing work with subsidiary trust and investment companies, and make
a comprehensive audit on its subsidiary department of trust, securities,
international business, credit card and real estate loans in order to prevent
operation out of the account. The computer monitoring system of all kinds of
business of financial institutions shall be set up in the line of the People's
Bank of China. All financial institutions shall strengthen the inspection and
audit on their branches, set up the system of personnel exchange, the system
of regular audit within the tenure and the system of audit when leaving office.

The People's Bank of China shall jointly with the Ministry of Finance and
the Securities Supervisory and Regulatory Commission of China formulate the
regulatory provisions for securities re-purchase as soon as possible to take
strict standardized management on the re-purchase business of securities. Any
inter-bank deposit in name of re-purchase of securities against the
regulations shall be banned. Effective measures shall be taken to completely
clear up the activities against regulations in the securities re-purchase.

(3) The competent department of foreign currency control shall, according
to the requirements of the Circular of the State Council on Further Reforming
the Foreign Currency Control System (Document Guofa No.(1993) 89 of the State
Council), further strengthen the supervision, inspection and management on the
designated banks of foreign currency. All designated banks of foreign currency
shall strictly carry out the provisions concerning settlement and sale of
foreign currency and account opening or saving and borrowing. The competent
department of foreign currency control shall set up constant and close
connection with the designated banks of foreign currency, customs and taxation
department to prohibit arbitrage of foreign currency.

(4) The Budget Law of the People's Republic of China and the Audit Law of
the People's Republic of China shall be carried out strictly. The management
of financial budgetary funds and extra-budgetary funds shall be seriously
strengthened according to the relevant provisions of the State Council.
Besides that the internal supervision and management of the finance department
shall be strengthened, the external supervision and restriction role of the
department of audit and supervision shall be played. In particular, the audit
supervision on the lower finance department by the higher finance department
shall be strengthened. The management on the financial turnover capital shall
be strengthened strictly according to the principle of controlling scale,
limiting investment direction, completing the system and strengthening the
supervision.

(5) The department of public security and the department of administration
for industry and commerce shall rectify the special businesses such as seal
carving and notes and certificates printing and shall hold strict control
thereon.

(6) The personnel of the departments of finance, banking, taxation,
foreign economic relation and trade, customs, foreign currency control and
administration for industry and commerce shall pay great attention to
ideological education to enhance their quality, heighten the sense of legality
and increasing the awareness of precaution. The unfit personnel shall be
promptly discharged from the important post.

(7) The people's government of province, autonomous region and
municipality directly under the central government shall take the forceful
organizational measures to carry out this Decision. The relevant department
under the State Council shall, according to this Decision, formulate the
detailed enforcement provisions respectively as soon as possible.

Category	BANKING	Organ of Promulgation	The State Council	Status of Effect	In Force
Date of Promulgation	1996-01-21	Effective Date	1996-01-21

Laws of the People's Republic of China

DECISION OF THE STATE COUNCIL ON CRACKING DOWN ON FRAUDS OF TAX REFUNDS FOR EXPORT AND PUNISHING ACTS VIOLATING LAW AND DISCIPLINE IN FINANCIAL AND TAX FIELDS