Implementing Rules for the PRC Tentative Regulations on Consumption Tax (Revised)

(Issued by the Ministry of Finance and State Administration of Taxation on December 15 2008 and effective as of January 1 2009.)

Order of the MOF and SAT No.51

Article 1: These Rules have been formulated pursuant to the PRC Tentative Regulations on Consumption Tax (the Regulations).

Article 2: For the purposes of Article 1 of the Regulations, the term “work units” means enterprises, administrative work units, public institutions, military work units, associations and other work units.

For the purposes of Article 1 of the Regulations, the term “individuals” means family proprietorships and other individuals.

For the purposes of Article 1 of the Regulations, the phrase “in the People's Republic of China” means that the point of origin or location of a consumer good that has been produced, processed pursuant to a commission or imported and that is subject to consumption tax is in the PRC.

Article 3: The specific scope of levy on the taxable consumer goods set forth in the Table of Consumption Tax Items and Rates attached to the Regulations shall be determined by the Ministry of Finance and the State Administration of Taxation.

Article 4: For the purposes of Article 3 of the Regulations, the phrase “a taxpayer concurrently deals in consumer goods that are subject to different consumption tax rates” means that the taxpayer produces and sells taxable consumer goods that are subject to two or more tax rates.

Article 5: For the purposes of the first paragraph of Article 4 of the Regulations, the term “sale” means the transfer of ownership of taxable consumer goods for consideration.

For the purposes of the preceding paragraph, the phrase “for consideration” means that money, goods or other economic benefit is obtained from the buyer.

Article 6: For the purposes of the first paragraph of Article 4 of the Regulations, the phrase “used for continued production of Taxable Consumer Goods” means that a taxpayer uses taxable consumer goods produced for its own use directly as materials in the production of the final taxable consumer goods and that such taxable consumer goods produced for its own use constitute a part of the final taxable consumer goods.

For the purposes of the first paragraph of Article 4 of the Regulations, the phrase “used for other purposes” means that the taxpayer uses taxable consumer goods produced for its own use in the production of non-taxable consumer goods, in a project under construction, in a management department, in a non-production organisation, to provide services, to give as gifts, for sponsorship purposes, for raising of funds, in advertising, as samples, as employee benefits, as incentives, etc.

Article 7: For the purposes of the second paragraph of Article 4 of the Regulations, the term “Taxable Consumer Goods that are processed pursuant to a commission” means taxable consumer goods for the processing of which the commissioning party provides the raw materials and the main materials and for which the commissioned party only charges a processing fee and advances payment for certain ancillary materials. Taxable consumer goods produced with raw materials provided by the commissioned party, taxable consumer goods the raw materials for which are first sold to the commissioning party by the commissioned party and after which the commissioned party accepts the commission for processing the same, and taxable consumer goods produced from raw materials purchased by the commissioned party in the name of the commissioning party may not, regardless of whether financially they are treated as sales, be treated as taxable consumer goods that are processed pursuant to a commission, and consumption tax shall be paid thereon in the same manner as for the sale of self-manufactured taxable consumer goods

If taxable consumer goods processed pursuant to a commission are sold directly, they shall not be subject to the payment of consumption tax.

Consumption tax on taxable consumer goods, the processing of which is commissioned to an individual, shall be paid by the commissioning party after it recovers the goods.

Article 8: The time at which a consumption tax payment obligation arises pursuant to Article 4 of the Regulations is as set forth below:

(1) where the taxpayer sells taxable consumer goods, shall, depending on the method of sales settlement, be as set forth below:

(a) if sold on credit or settled in instalments, the payment date specified in the written contract, or if the written contract is silent on the payment date or there is no written contract, on the date the taxable consumer goods are shipped;

(b) if settled by advance payment, the date the taxable consumer goods are shipped;

(c) if settled through a collection and payment agency or by appointing a bank to receive the moneys, the date the consumer goods are shipped and the collection procedures are carried out; or

(d) if settled by other means, the date the sales amount is received or the date the voucher with which payment of the sales amount can be demanded is obtained;

(2) where the taxpayer produces taxable consumer goods for its own use, the date the same are transferred for use;

(3) where the taxpayer commissions the processing of taxable consumer goods, the date on which the taxpayer takes delivery of the goods; or

(4) where the taxpayer imports taxable consumer goods, the date the customs declaration procedures for the import of the goods are carried out.

Article 9: For the purposes of the first paragraph of Article 5 of the Regulations, the term “sales quantity” means the quantity of taxable consumer goods. More particularly:

(1) where taxable consumer goods are sold, the quantity of taxable consumer goods sold;

(2) where taxable consumer goods are produced for own use, the quantity of taxable consumer goods transferred for use;

(3) where taxable consumer goods are processed pursuant to a commission, the quantity of taxable consumer goods recovered by the taxpayer; or

(4) where taxable consumer goods are imported, the quantity of taxable consumer goods imported and on which duties and taxes are assessed and determined by customs.

Article 10: For taxable consumer goods on which the tax payable is calculated by the ad valorem method, the standards for converting between units of measure are as set forth below:

(1) yellow wines: 1 tonne = 962 litres

(2) beer: 1 tonne = 988 litres

(3) gasoline: 1 tonne = 1,388 litres

(4) diesel: 1 tonne = 1,176 litres

(5) aviation fuel: 1 tonne = 1,246 litres

(6) naphtha: 1 tonne = 1,385 litres

(7) solvent naphtha: 1 tonne = 1,282 litres

(8) lubricating oil: 1 tonne = 1,126 litres

(9) fuel oil: 1 tonne = 1,015 litres.

Article 11: Where a taxpayer settles the sales turnover of taxable consumer goods it has sold in a currency other than renminbi, it may use the median of the renminbi exchange rate either on the date that the sales turnover occurred or on the first day of that month when translating its sales turnover into renminbi. The taxpayer shall determine in advance which translation rate it is to use and, once determined, such rate may not be changed for one year.

Article 12: For the purposes of Article 6 of the Regulations, the term “sales turnover” shall not include the value-added tax charged the buyer. If the taxpayer fails to deduct the value-added tax from the sales turnover of taxable consumer goods or if the price and the value-added tax are charged together due to an inability to issue a dedicated value-added tax invoice, the translation of the sales turnover without value-added tax shall be effected when calculating the consumption tax. The formula for such translation is as set forth below:

sales turnover of taxable consumer goods = sales turnover with value-added tax ÷ (1 + value-added tax rate or levy rate).

Article 13: If taxable consumer goods are sold together with packaging, the packaging shall be included in the sales turnover of the taxable consumer goods and consumption tax paid thereon regardless of whether the packaging is priced separately or of how it is calculated for accounting purposes. If the packaging accompanies the product without consideration when the latter is sold and a deposit is charged thereon, such deposit shall not be included in the sales turnover of the taxable consumer goods or tax paid thereon. However, if the deposit is not refunded due to the packaging not being recovered by the deadline for such recovery or if more than 12 months have elapsed since the charging of the deposit, such deposit shall be included in the sales turnover of the taxable consumer goods and consumption tax shall be paid thereon at the applicable tax rate for the taxable consumer goods.

If packaging is both sold for consideration together with the goods and a deposit is charged thereon and the taxpayer does not refund the same within the specified period time, both shall be included in the sales turnover of the consumer goods and consumption tax shall be paid thereon at the applicable tax rate for the taxable consumer goods.

Article 14: The “additional charges” mentioned in Article 6 of the Regulations shall include handling fees charged to the buyer in addition to the price, as well as subsidies, funds, financing expenses, profit recovery, incentives, liquidated damages, late payment fines, default interest, damages, moneys collected on the behalf of a third party, moneys advanced on the behalf of a third party, packaging charges, rental charges for packaging, reserve charges, bonuses, freight, loading and unloading charges, and other additional charges of whatever nature, but exclude the following:

(1) freight charges advanced on behalf of a third party that satisfy both of the following conditions:

(a) a freight charge invoice is issued to the buyer by the carrier; and

(b) the taxpayer forwards the invoice to the buyer; and

(2) funds of a governmental nature and administrative charges charged on behalf of a third party that satisfy all of the following conditions:

(a) funds of a governmental nature the establishment of which has been approved by the State Council or the Ministry of Finance and administrative charges the charging of which has been approved by the State Council or provincial-level people's government or its competent finance or pricing department;

(b) at the time of the charging thereof, a fiscal receipt printed by the finance department at the provincial level or above is issued; and

(c) all of the moneys collected are paid into the treasury.

Article 15: For the purposes of the first paragraph of Article 7 of the Regulations, the term “Taxable Consumer Goods produced by taxpayers for their own use” means taxable consumer goods on which tax is paid at the time of transfer for use as specified in the first paragraph of Article 4 of the Regulations.

For the purposes of the first paragraph of Article 7 and the first paragraph of Article 8 of the Regulations, the term “selling price of the same type of consumer goods” means the selling price of the same type of consumer goods sold by the taxpayer or withholding agent during the same month; if the selling price of the same type of consumer goods during the month in question varied, it shall be calculated using the weighted average of the sales quantity. However, if either of the following circumstances apply to taxable consumer goods sold, the weighted average calculation method may not be used therefor:

(1) the selling price is obviously low without legitimate reason; or

(2) there is no selling price.

If there were no sales that month or if the month is not yet concluded, the calculation shall be made based on the selling price of the same type of goods during the preceding month or the most recent month and tax paid on that basis.

Article 16: For the purposes of Article 7 of the Regulations, the term “cost” means the production cost of taxable consumer goods.

Article 17: For the purposes of Article 7 of the Regulations, the term “profit” means the profit as calculated based on the average cost to profit ratio for taxable consumer goods nationwide. The average cost to profit ratio for taxable consumer goods nationwide shall be determined by the State Administration of Taxation.

Article 18: For the purposes of Article 8 of the Regulations, the term “materials cost” means the actual cost of the processing materials provided by the commissioning party.

A payer of tax on taxable consumer goods processed pursuant to a commission must truthfully indicate in the commissioned processing contract (or otherwise provide) the materials cost. If the materials cost is not provided, the tax authority in charge of the place where the commissioned party is located shall have the right to assess and determine the materials cost.

Article 19: For the purposes of Article 8 of the Regulations, the term “processing fee” means all of the charges that the commissioned party charges the commissioning party for the processing of the taxable consumer goods (including the actual costs of ancillary materials that are advanced by the commissioned party).

Article 20: For the purposes of Article 9 of the Regulations, the term “dutiable price” means the price assessed and determined by customs for the purpose of customs duties.

Article 21: The authority for the assessment and determination of the “price for taxation purposes of … Taxable Consumer Goods” as mentioned in Article 10 of the Regulations is as set forth below:

(1) the price for taxation purposes of cigarettes, white spirits and light motor vehicles shall be assessed and determined by the State Administration of Taxation and forwarded to the Ministry of Finance for the record;

(2) the price for taxation purposes of other taxable consumer goods shall be assessed and determined by the office of the State Administration of Taxation of the province, autonomous region or municipality directly under the central government; and

(3) the price for taxation purposes of imported taxable consumer goods shall be assessed and determined by customs.

Article 22: If, after tax has been refunded, exported taxable consumer goods are shut out or if exported taxable consumer goods returned from abroad are granted a duty and tax exemption upon import, the exporter that carried out the customs declaration procedures must file tax returns with and pay the previously refunded consumption tax to the tax authority in charge of the place where the taxpayer's establishment is located or of the place where he/she is resident.

If, after tax exemption procedures are carried out, taxable consumer goods directly exported by the taxpayer are shut out or if taxable consumer goods directly exported by the taxpayer and returned from abroad are granted a duty and tax exemption upon import, the taxpayer may, with the approval of the tax authority in charge of the place where the taxpayer's establishment is located or of the place where he/she is resident, provisionally not be required to pay the tax, instead filing the tax return and paying the consumption tax when the goods are then sold domestically.

Article 23: If taxable consumer goods sold by a taxpayer are returned by the buyer due to a quality problem or other such reason, the consumption tax paid thereon may be refunded subject to the examination and approval of the tax authority in charge of the place where the taxpayer is located or of the place where he/she is resident.

Article 24: If a taxpayer sells self-produced taxable consumer goods in another county (or city) or engages a third party in another county (or city) to sell such goods there on its/his behalf, it/he/she shall, after the sale thereof, file tax returns with and pay tax to the tax authority in charge of the place where its establishment is located or of the place where he/she is resident.

If a taxpayer's head office and branch are in different counties (or cities), tax returns shall be filed separately with and tax paid separately to the competent tax authorities of the places where each establishment is located. Subject to the approval of the Ministry of Finance and the State Administration of Taxation or the finance and tax authorities authorised by them, its head office may file consolidated tax returns and pay tax for all of the establishments to the tax authority in charge of the place where the head office is located.

For taxable consumer goods processed by an individual pursuant to a commission, the commissioning party shall file tax returns with and pay tax to the tax authority in charge of the place where its establishment is located or of the place where he/she is resident.

For imported taxable consumer goods, the importer or its agent shall file tax returns and pay tax to customs of the place where the customs declaration procedures were carried out.

Article 25: These Rules shall be effective as of January 1 2009.