国务院批转国家税务总局工商税制改革实施方案的通知 CIRCULAR OF THE STATE COUNCIL ON THE APPROVAL AND TRANSMISSION OF THE APPLI

on of enterprise income tax， current practice of contracting enterprise income tax shall be changed.

　　（2） Individual Income Tax

　　The amendment draft of the Individual Income Tax Law of the People's Republic of China adopted at the 4th Meeting of the Standing Committee of the 8th National People's Congress on October 31， 1993， shall enter into force as of January 1st， 1994. The basic principles for individual income tax reform is to regulate the difference in income between individuals and alleviate the contradiction of unfair social distribution. For this purpose， Individual Income Tax shall be mainly levied on those with higher income， while whose with medium or low income shall be levied less or exempted.

　　Main contents of individual income tax reform are：

　　i. Original Individual Income tax， Regulation Tax on Individual's Income and Income Tax on Urban and Rural Individual Businesses shall be unified.

　　ii. The deductible threshold for expenditure in individual income tax. Basic living expenses shall be exempted from tax according to international practice， and monthly deductible amount from “income of wages and salaries” is determined to be RMB 800 Yuan. In application of the uniform Individual Income Tax Law， for both Chinese nationals and foreign nationals， additional deductible amount shall be stipulated for the latter， the specific amount and applicable scope shall be determined by the State Council.

　　iii. Taxable items have been appropriately adjusted， mainly with the addition of income from production or business operation， income from transfer of property and contingent income by individual businesses.

　　iv. Based on the reality of this country and with reference to practices of the developing or neighboring countries， tax rate of individual income tax is determined， in which income from wages and salaries shall be taxed at progressive rates ranging from 5% to 45%； income from production and business operation of individual businesses and income from contracted or leased operation of enterprises or institutions shall be taxed at progre

ssive rates ranging from 5% to 35%， tax liability of which is roughly similar with that of enterprises； income from author's remuneration shall be taxed at a flat rate of 20% and the amount of tax payable however shall be reduced by 30%； and income from remuneration for services， royalties， interest， dividends， bonuses， lease of property and transfer of property， as well as contingent income and other income shall be taxed at a flat rate of 20%.

　　4. Reform on Turnover Tax System

　　Reform on turnover tax system is the key point in whole tax system reform. Existing turnover tax system comprises 3 main categories of taxes， i.e. Value-Added Tax（hereinafter referred to as VAT）， Product Tax and Business Tax. VAT is applicable to most part of industrial production field， small part of industrial products （tobacco， alcoholic drinks and alcohol， electricity， petroleum chemistry and chemical industry etc.） is subject to Products Tax， while Business Tax is mainly levied in the field of commerce and other tertiary industries.

　　Turnover tax system consists of， after the reform， VAT， Consumption Tax and Business Tax. VAT is generally levied in industrial production field， wholesale and retail commercial field， a small part of consumer goods is levied with Consumption Tax， and Business Tax is levied on the kind of service and sale of immovable property to which VAT is not applicable.

　　New turnover tax system is uniformly applicable to enterprises with domestic investment， and foreign investment and foreign enterprises （hereinafter referred to as foreign funded enterprises）， Consolidated Industrial and Commercial Tax applied to foreign funded enterprises shall be repealed. Agricultural， forestry， animal husbandry and aquatic products originally levied with Products Tax shall be levied with Special Agricultural Products Tax and Slaughter Tax.

　　Reform of turnover tax system should reflect principles of fairness， neutrality， transparency and universality， and overall tax burden shall remain basically identical to present level.

　　（1） VAT

　　i. VAT shall be levied on all the production， wholesale， retail and importation of goods， and shall not be applicable temporarily to most part of services and sale of immovable property.

　　ii. Model of VAT rate system shall adopt a basic rate， together with a low rate and a zero rate. According to the principle of keeping original tax burden unchanged， and considering the factor of tax base reduction after application of pricing system excluding tax， the basic rate of VAT is designed to be 17% （equal to tax rate of 14.5% on pricing method including tax）； the low rate is designed to be 13% （equal to tax rate of 11% on pricing method including tax） the applicable scope of which includes basic food and means of agricultural production etc.； while zero rate shall be applicable generally to export goods.

　　iii. VAT shall be levied through calculation on price without VAT， that is， VAT is calculated on goods price excluding VAT and with prescribed tax rate.

　　iv. Credit system based on indicated tax on invoice shall be carried out. Where goods are sold in respective stages before retail， VAT and price excluding VAT must be indicated on invoices according to relevant regulations. To adapt itself to consumers' custom in China， in retail stage of goods， hidden tax shall be applied with no separate indication of VAT on invoices.

　　v. For small scale tax payers whose annual sales amount is relatively less and accounting system is not sound， VAT shall be calculated in a simple way based on total sales amount and prescribed leviable rate.

　　vi. Reform VAT payment system. Special tax registration shall be required for VAT payers， also special VAT invoice shall be used， an investigation and inspection mechanism with cross auditing for both purchasing and selling parties of tax payers and an internal mechanism for avoidance of

fiscal evasion and tax exemption and reduction shall be established.

　　vii. After abolishment of Consolidated Industrial and Commercial Tax for foreign funded enterprises and uniform application of VAT， Consumption Tax and Business Tax， some changes shall occur to tax burden. The burden for some enterprises may remain at the same level as that before the reform， some may reduce the burden slightly and others may increase somewhat. To guarantee the open policy of our country and the continuity and stability of foreign related taxation policy， the increase in tax burden to some enterprises should be solved through proper measures. The specific method is， the increased part of tax calculated on the tax system after the reform than before the reform， shall be refunded back once at the end of the year or in installments through the year after examination and approval by responsible tax authorities. The preferential period shall be limited to contract term， but the maximum shall not beyond the year of 1998. For newly set up foreign funded enterprises approved after January 1st， 1994， provisions regarding tax liability in mew tax law shall be applicable uniformly.

　　（2） Consumption Tax

　　After all products originally levied with Products Tax changed into levying of VAT， tax burden for quite an amount of products shall be reduced greatly. To safeguard national financial revenue， embodying the principle of maintaining identical tax burden as before， also in consideration of special adjustment on some consumer goods， small number of consumer goods shall be selectively levied with Consumption Tax on the basis of levying VAT. There are 11 tax able items for Consumption Tax， mainly including tobacco， alcoholic drinks and alcohol， cosmetics， precious jewelry， motorcycles， motor cars， gasoline， diesel oil etc. Calculation of tax payable for Consumption Tax shall follow either the amount on volume or the rate on value method. Consumption Tax payable under the rate on value method， shall be calculated according to the price excluding VAT， but including Consumption Tax， and the prescribed rate.

　　（3） Business Tax

　　The taxable scope of Business Tax after the reform consists of provision of service， transfer of intangible assets and sale of immovable properties. For communications and transportation， construction， posts and telecommunications， culture and sports etc. tax rate is 3%； for finance and insurance， services， transfer of intangible assets and sale of immovable properties etc. tax rate is 5%； for entertainment， tax rate is 5-20%.

　　Units and individuals performing the activities of the above-mentioned operation， transfer and sales shall be liable to pay Business Tax calculated on the turnover and prescribed tax rate.

　　5. Reform on Other Taxes

　　（1） Resource Tax

　　At present， Resource Tax is levied only on part of resource products and a number of enterprises engaged in the exploitation of resources， the leviable scope is restricted and tax burden is relatively light. To perfect the system of taxing resource products in China， the scope of Resource Tax after reform shall cover all mineral resources， tax able items shall include coal， crude oil， natural gas， iron ore and other ferrous metal ores， bauxite and other non-ferrous metal ores， non-metal ores and salt. Tax burden shall be adjusted properly in coordination with VAT reform.

　　Resource Tax shall be calculated in accordance with the assessable volume of the taxable products and the prescribed unit tax amount， a tax amount range is set up with the upper and lower limits. Tax amount may vary for the same kind of resource products with different explo

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