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PROVISIONS OF THE STATE COUNCIL FOR FURTHER MAKING PERFECT ECONOMIC POLICY ON CULTURE

    With a view to effectively strengthening the construction of socialist
spiritual civilization, facilitating the healthy development of cultural
undertakings, the State Council has decided to further make perfect economic
policy on culture so that while the state finance strengthens the investment
into cultural undertakings, other funding channels could be broadened and a
fund solicitation system with multi-funding channels which conforms with the
requirements of the socialist market economy could be erected step by step.

    1. Levy of Cultural Undertaking Construction Fees

    To lead and control the development of cultural undertakings, the state
shall from the date of January 1, 1996 and onward, levy cultural undertaking
construction fees nationwide except for localities where such fees have
already been collected:

    (1) An amount of three percent of business income shall be levied as
cultural undertaking construction fees upon all profit-making song halls,
ballrooms, Karaoke rooms, music-and-tea rooms, and recreational places of
golf, billiards or bowling.

    An amount of three percent of business profit shall be levied as cultural
undertaking construction fees upon all broadcasts, TV stations, newspapers,
journals, other advertisement-service-inclusive units and units that run
business of open place advertisement.

    (2) Cultural undertaking construction fees shall be collected by local tax
organs simultaneously with business tax levied on entertainment and
advertisement services. Payment of cultural undertaking construction fees by
units attached to the central government or state organs shall, after being
collected by local tax organs, all be turned over to the central state
treasury. Payment of cultural undertaking construction fees by localities
shall all be turned over to provincial state treasuries.

    (3) Cultural undertaking construction fees shall be subjected to financial
budget management. Specialized funds at both central and provincial levels
shall be set up, which should have their funds used in the construction of
cultural undertakings. Detailed procedures governing the management and
application of cultural undertaking construction fees shall be drafted by the
financial department in cooperation with other relevant administrative
departments.

    2. Contributions to Cultural Undertakings Shall Be Encouraged

    To encourage the financial support of social forces to cultural
undertakings, the following donations to cultural institutions by a taxpayer
through the administrative department in charge of culture or through
non-profit-making charity institutions established after authorization may,
subject to the examination of the competent tax organ, be deducted up to three
percent of annual taxable income when the taxpayer computes his taxable income.

    (1) donations to key state symphony orchestras, ballet troupes, opera
troupes or Beijing opera troupes and other theatres performing national arts;

    (2) donations to public welfare institutions such as libraries, museums,
science and technology centres, art galleries, revolutionary history
celebration halls;

    (3) donations to major culture relics preservation units.

    3. Financial and Tax Preferential Policies Shall Be Continuously Adopted

    With the economic development and revenue increase, investment in cultural
undertakings shall be enlarged step by step. Preferential financial and tax
policies shall continue.

    (1) During the Ninth-Five-Year period, the value-added tax imposed upon
publications of the seven categories described in the Provisions on continuing
Preferential Policy on Finance and Taxation for Propaganda and Cultural Units,
which was promulgated by the Financial Ministry and the State Tax
Administration through Financial and Tax document No.089 in 1994, and upon
publications sold by Xinhua bookstores at county level and below, and by rural
supply and marketing cooperatives shall continue to be subject to the
procedure of "collection first and refunding later". Film studios established
after authorization by the State Council shall have their sales income of film
copies exempted from levy of value-added tax. Central and provincial financial
departments shall continue to approve the expense budget of propaganda and
cultural enterprises according to their actual payment of income tax in the
preceding year, and shall establish special funds for propaganda and culture
development. Central and provincial financial departments, shall, when making
a budget, continue to allocate part of the budget as special money for the
funds for propaganda and culture development.

    Where the finance and taxation preferential policy is terminated due to
readjustment of tax system, financial departments at different levels shall,
through budget arrangement, solve consequent fund problems of propaganda and
culture units.

    (2) Financial aid to the "Border Cultural Corridor of Ten Thousand Li"
shall be raised properly. Certain amount of minority nationality undertakings
funds and border construction funds shall be allocated for support to cultural
undertakings construction of remote border areas and minority nationality
areas.

    4. Establishment and Improvement of Specialized Fund System

    To promote the development of propaganda and cultural undertakings,
strengthen the competence of control, ensuringly satisfy major demands and
standardize the management of funds, the central and provincial governments
shall establish a sound specialized fund system.

    Sources of the specialized funds include financial budget or
extra-budgetary funds such as fees collected according to the relevant state
regulations. The financial department shall make proper budgetary arrangement
for the specialized funds. Other relevant departments shall collect
extra-budgetary funds strictly according to corresponding regulations.
Presently, focus of the work shall be placed on improvement of the following
funds: Specialized funds for Propaganda and Culture Development, Specialized
Funds for Composition and Performance of Excellent Operas and Programmes,
National Specialized Funds for Development of Film Undertakings, Specialized
Funds for Development of Publishing Undertakings.

    Specialized funds are part of financial resources, and shall be subject to
the relevant financial regulations and placed under a more sound system and
strengthened management. Specialized funds shall be specially used and
subjected to the supervision and check of financial and auditing departments.