REGULATIONS OF THE MINISTRY OF FINANCE CONCERNING THE COLLECTION AND REMISSION OF INDUSTRIAL AND COMMERCIAL TAXES ON IMPORT AND EXPORT COMMODITIES

(Approved and Transmitted by the State Council on December 30, 1980)

SUBJECT: TAXATION

ISSUING-DEPT: STATE COUNCIL OF CHINA

ISSUE-DATE: 12/30/1980

IMPLEMENT-DATE: 01/01/1981

TEXT:

It is hereby stipulated as follows on the question of collecting and remitting industrial and commercial taxes on import and export commodities in order to facilitate the protection of domestic production and the development of export trade, to facilitate the import of foreign capital and advanced technology and equipment and to ensure the protection of the country’s financial revenues and strengthen tax control:

PART I CONCERNING THE COLLECTION AND REMISSION OF INDUSTRIAL AND COMMERCIAL TAXES ON EXPORT COMMODITIES

(1) An industrial and commercial tax shall be levied on industrial products and dutiable agricultural, forestry, animal husbandry and aquatic products for export according to the provisions of the state tax laws when the industrial products are leaving the factory or when the agricultural, forestry, animal husbandry and aquatic products are being purchased.

(2) As for the commodities exported with state approval, the industrial and commercial tax shall be exempted on those whose cost involved in earning foreign exchange, calculated after the tax is deducted, is higher than the internal settlement price for foreign exchange earned through trade in the same year; the industrial and commercial tax can be reduced according to the circumstances on those whose cost is lower than the internal settlement price. Tax reductions or remissions shall be reported to the Ministry of Finance or provincial, municipal and autonomous regional governments for approval in accordance with the provisions of the current tax administration system.

(3) Export commodities on which the tax is reduced or exempted upon approval, shall be settled according to the price after deducting the sum of tax reduction or remission when the supply units sell them to the export department (not including the tax reduction or remission at the request of the supply units owing to the big deficit involved in the manufacture of export commodities).

(4) When commodities on which the industrial and commercial tax has been levied are transferred to the export department for sales abroad, the industrial and commercial tax already paid shall not be refunded regardless of the deficit involved in the export. when export commodities on which the industrial and commercial tax has been reduced or exempted are switched to sale on the home market, the tax shall be paid as overdue according to the regulations if the tax rate exceeds 20%; the industrial and commercial tax for the industrial link or the purchase link shall not be paid if the tax rate is no more than 19%, except otherwise stipulated.

(5) The export department and the manufacturing and managing unit, in requesting tax reduction or remission, must provide the local tax authorities with such data about the export commodity as price, cost, profit or deficit and the cost involved in earning foreign exchange through export.

PART II CONCERNING THE COLLECTION AND REMISSION OF INDUSTRIAL AND COMMERCIAL TAXES ON IMPORT COMMODITIES

An industrial and commercial tax shall be levied according to the provisions of the state tax laws on the commodities imported from abroad by the foreign trade department and other state owned enterprises, collective enterprises, joint ventures with Chinese and foreign investment, government organs, mass organizations, institutions, etc. But industrial and commercial tax is exempted on the following commodities:

(1) Advanced technology and prototypes imported with state approval;

(2) Mechanical equipment, parts and raw or processed materials imported as capital investment by the foreign partner in a joint venture with Chinese and foreign investment according to the provisions of the contract;

(3) Equipment, appliances, transport and loading or unloading tools imported with state approval for the construction of special economic zones, as well as mechanical equipment, parts and raw or processed materials imported by enterprises in the special economic zones for the manufacture of export commodities;

(4) Raw or processed materials, parts and equipment imported by foreign firms, overseas Chinese firms and Hong Kong and Macao industrialists and businessmen as required for processing with supplied material, assembly with supplied parts and medium and small compensation trade according to the provisions of the contract;

(5) Instruments and equipment directly used in scientific research, scientific experiments and teaching;

(6) Commodities with loss owing to policy considerations and imported with financial subsidies upon state approval, such as grain, raw sugar, insecticides and chemical fertilizer.

The industrial and commercial tax is exempted on the raw or processed materials, auxiliary material, packing material and parts imported for use in processing export commodities. But the industrial and commercial tax for import shall be paid as overdue on the imported raw or processed materials, auxiliary material, packing material and parts consumed in processing commodities originally meant for export but later switched to sale on the home market.

As for exhibits at the foreign economic, cultural, scientific and technological exhibitions in China, no tax shall be levied if they are shipped out again within three months after the exhibitions; a tax shall be levied according to the regulations on those left behind for sale.

PART III CONCERNING THE COLLECTION AND REMISSION OF INDUSTRIAL AND COMMERCIAL TAXES AND INCOME TAXES ON ENTERPRISES ACCEPTING PROCESSING WITH SUPPLIED MATERIALS AND ASSEMBLY WITH SUPPLIED PARTS

Where the materials or parts supplied by foreign firms, overseas Chinese firms and Hong Kong and Macao industrialists and businessmen account for less than 20% of the total value of the raw or processed materials, auxiliary materials and parts used on the products, an industrial and commercial tax and an income tax shall be levied according to the regulations on the processed or assembled products and the income from the processing or assembly. Where they account for more than 20% of the total value, the industrial and commercial tax shall be exempted on the products; as for the income from the processing or assembly, the state-owned enterprises shall be exempted from the industrial and commercial tax and the collective enterprises shall be exempted from the industrial and commercial tax and the income tax for three years beginning from the month when the first batch of such income is earned.

When an enterprise accepting processing with supplied materials or assembly with supplied parts asks other factories to do the processing or assembly, the case can be dealt with according to the above-mentioned principle if this matter is included in the contract signed by the foreign client on the processing with supplied materials or the assembly with supplied parts.
When the above-mentioned duty-free imported raw or processed materials, auxiliary materials and parts and the manufactured commodities are switched to sale on the home market, taxes shall be paid as overdue according to regulations.

Tobacco, cigarettes and alcoholic drinks are highly taxable products, and taxes shall be levied on them according to the general regulations.

PART IV CONCERNING THE COLLECTION AND REMISSION OF INDUSTRIAL AND COMMERCIAL TAXES AND INCOME TAXES ON CERTAIN ENTERPRISES INVOLVED IN CONSTRUCTION ITEMS WITH LOANS

An industrial and commercial tax shall be levied according to regulations on the products manufactured by the construction items imported by enterprises with foreign exchange loans (including the loans for domestic auxiliary capital construction), the medium and small compensation trade items and the capital construction items built with loans for the special plants or workshops manufacturing export commodities.

In each of the years during the period of repayment of the loans, state-owned enterprises can repay the loans, principal and interest, with the profit made from the newly added products of the loan items, the fixed asset depreciation fund and the due charges for using the fixed funds; enterprises which institute the system of retaining a share of profits can draw the workers’ welfare fund and the reward fund according to the ratio based on the state-approved base figure before repaying the loans, but they must not draw the production development fund nor the above quota profit retention fund. Urban collective enterprises can repay the loans, principal and interest with the profit made from the newly added products of the loan items (that is, the profit before the income tax is paid) and the fixed asset depreciation fund; during the period when the loans are being repaid, the departments in charge of enterprises must not draw profit and various funds from the loan items in the enterprises under them.

If there is a surplus after an enterprise has used the above sums of money in repaying the loan, principal and interest repayable that current year, an income tax shall be levied on the surplus or the profit shall be turned in according to regulations; if the sums so used are not enough, the deficit can be made up by the due amount of the industrial and commercial tax on the newly added products of the loan items after the case has been examined and approved by the tax authorities.

Having paid off the loans, principal and interest, enterprises shall immediately resume paying the taxes or turn in profits according to regulations.

Enterprises applying for use of special loans must send copies of the relevant documents to the local tax authorities for reference.

The present regulations come into force as of January 1, 1981. In case past regulations contradict the present, the latter shall prevail.