Detailed rules on adjustment of consumption tax items and rates

The Chinese Ministry of Finance and the State Administration of Taxation have jointly issued a circular on adjustment and improvement of the consumption tax policy. The circular becomes effective on April 1, 2006.
The circular says that approved by the State Council, the country adjusts items and rates of consumption tax and the relevant policy in order to meet the needs of development of the social and economic situation, and further improve the consumption tax system.

I. Newly added tax items

(1) Tax items of golf ball and clubs, high-grade wristwatch, yacht, disposable wooden chopsticks and wooden flooring. Their tax rates are:

1.Golf ball and clubs: 10%;
2.High-grade wristwatch: 20%;
3.Yacht: 10%;
4.Disposable wooden chopsticks: 5%;
5.Wooden flooring: 5%.

(2) Abolishing the tax items of petrol and diesel oil, and adding a new item, processed oil. The tax items of petrol and diesel oil are changed into sub-items under the processed oil item (with the tax rate remaining unchanged). At the same time, five new sub items are added, namely naphtha, solvent oil, lubricant oil, fuel, and aviation oil.

a. Tax rates of the above newly added items (unit/tax amount) are:

1.Naphtha: 0.2 yuan/ litre;
2.Solvent oil: 0.2 yuan/litre;
3.Lubricant oil: 0.2 yuan/litre;
4.Fuel: 0.1 yuan/litre;
5.Aviation oil: 0.1 yuan/litre.

b. Standards of measuring unit of the above newly added items are:

1.Naphtha: 1 ton = 1,385 litres;
2.Solvent oil: 1 ton = 1,282 litres;
3.Lubricant oil: 1 ton = 1,126 litres;
4.Fuel: 1 ton = 1,015 litres;
5.Aviation oil: 1 ton = 1,246 litres.
The exchange standards of the measuring unit are decided by the Ministry of Finance and the State Administration of Taxation.

II. Tax Payers

Units and individuals who produce and undertake consigned processing and import of the above newly added taxable consumer goods are the taxpayers of the consumption taxes, and shall pay the consumption taxes in accordance with the Provisional Rules on Consumption Tax of the People's Republic of China (hereinafter referred to as "the rules") and stipulations of the circular.

III. Abolishment of Tax Items

The tax item for skin- and hair-care products is abolished; and the high-grade skin-care cosmetics originally in the taxable scope of skin- and hair-care products are listed into the item of cosmetics.

IV. Adjustment of Tax Items and Rates

1. Adjustment of tax items and rates of cars

The sub-items of car, cross-country vehicle and small buses under the tax item of car are abolished; and the sub-items of passenger vehicle, medium-sized and light commercial buses are put under the tax item of car. Their applicable tax rates are:

a. Passenger vehicle:

(1) Cylinder capacity (displacement, the same as below) of 1.5 litres or below: 3%;
(2) Cylinder capacity of above 1.5 litres to 2.0 litres: 5%;
(3) Cylinder capacity of above 2.0 litres to 2.5 litres: 9%;
(4) Cylinder capacity of above 2.5 litres to 3.0 litres: 12%;
(5) Cylinder Capacity of above 3.0 litres to 4.0 litres: 15%;
(6) Cylinder capacity of above 4.0 litres: 20%.

b. Tax rate of medium-sized and light commercial buses is 5%.

2. Adjustment of tax rates for motorcycle

Tax rate for motorcycle will be changed to be set by displacement:

(1) Cylinder capacity of 250 ml or below: 3%;
(2) Cylinder capacity of above 250 ml: 10%.

3. Adjustment of tax rates of automobile tyre

Tax rate of automobile tyre is cut from 10% to 3%.

4. Adjustment of tax rates of alcohol

The tax rate for grain-type alcohol and potato-type alcohol is unified at 20%. The fixed amount tax rate is set at 0.5 yuan/jin (500 grams) or 0.5 yuan/500 ml. The measuring unit of the amount tax rate is set on the basis of the actual weights of the sold commodities, if the actual sold commodity is marked with a measuring unit by volume, it shall be converted by the standard of 500 ml equivalent to one jin (500 grams), but cannot be converted according to the alcohol content.

V. Basis of taxable amount on sales of integrated sets

Tax payers who sell their domestically manufactured consumption products in sets together with non-taxable consumption products purchased from the outside or which are self made shall pay tax according to the amount of sales of the product sets (not including VAT).

VI. Tax collection on self-made naphtha which has been used in continuous production by the enterprises

Production enterprises using self-made naphtha in continuous production of petrol and such taxable consumption products inside the enterprises are not obligated to pay consumption tax; but in the continuous production of ethane and non-taxable consumption products or other fields they shall pay consumption tax when transferring them for use.

VII. Deduction of paid taxes

The following taxable consumption products are allowed to deduct the part of consumption tax paid for raw materials from the taxable amount of consumption tax:

Golf club with taxed club head, body and handle purchased or recovered of consigned processing as raw materials;
Wooden disposable chopsticks with taxed wood disposable chopsticks purchased or recovered of consigned processing as raw materials;
Wooden flooring with taxed wooden flooring purchased or recovered of consigned processing materials as raw materials;
Taxable consumption products with taxed naphtha purchased or buy-ack of consigned processing as raw materials;
Lubricant oil with taxed lubricant oil purchased or recovered of consigned processing as raw materials.
Rules covering deduction for already paid consumption tax will be set by the Taxation Authority.

VIII. National average cost/profit rate of newly added and adjusted tax items

The national average cost/profit rate of newly added and adjusted tax items is temporally fixed as follows:

Golf ball and clubs: 10%;
High-grade wristwatch: 20%;
Yacht: 10%;
Disposable wood chopsticks: 5%;
Wooden flooring: 5%;
Passenger vehicle: 8%;
Medium-sized and light commercial buses: 5%.

IX. Export

The taxation policy on drawback (exemption) of taxable consumption products for export shall follow the rules and relevant regulations on the adjusted tax items and rates.

X. Tax reduction and exemption

1. Consumption tax rate for naphtha, solvent oil, lubricant oil and fuel is temporally set at 30% of the taxable amount; and collection of consumption tax on aviation oil has been suspended for a time.

2. Radial ply tyre is exempted from consumption tax.