Taxation in China

Taxation
An aspect of fiscal policy
Policies Government revenue Tax revenue Non-tax revenue Tax law Tax bracket Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Double taxation Representation Unions Medical savings account Tax, tariff and trade
Economics General Theory Price effect Excess burden Tax incidence Laffer curve Optimal tax Theory Optimal capital income taxation Distribution of Tax Tax rate Flat Progressive Regressive Proportional
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Private tax collection Tax farming
Noncompliance General Tax avoidance Tax evasion Tax resistance Tax shelter Smuggling Black market Unreported employment Corporate Tax inversion Transfer mispricing Base erosion and profit shifting (BEPS) Double Irish Dutch Sandwich Single Malt Irish Green Jersey Locations Tax havens Corporate tax havens Offshore financial centres (OFCs) Offshore magic circle Conduit and Sink OFCs Financial centres Financial Secrecy Index Examples Apple €13 billion EU fine Luxembourg Leaks Leprechaun economics Paradise Papers Panama Papers Ireland as a tax haven United States as a tax haven Panama as a tax haven
Types Direct Indirect Per unit Ad valorem In rem Capital gains Carbon Consumption Dividend Ecotax Excise Fuel Georgist Gift Gross receipts Income Inheritance (estate) Land value Payroll Pigovian Property Sales Sin Single Stamp Steering Turnover Value-added (VAT) Corporate profit Excess profits Windfall profits Negative (income) Wealth
International Financial transaction tax Currency transaction tax European Union Common Consolidated Corporate Tax Base (CCCTB) Tobin tax Spahn tax Tax equalization Tax treaty Permanent establishment Transfer pricing European Union FTT Foreign revenue rule
Trade Custom Duty Tariff Import Export Tariff war Free trade Free trade zone Trade agreement ATA Carnet
Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Joel Slemrod Gabriel Zucman Advocacy Groups Tax Justice Network (TJN) Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Policy Center (US)
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
By country All Countries List of countries by tax rates Tax revenues as % of GDP Tax rates in Europe Individual Countries Albania Algeria Argentina Australia Azerbaijan Bangladesh Bhutan Brazil Bulgaria BVI Canada China Colombia Croatia Denmark Finland France Germany Greece Hong Kong Iceland India Indonesia Iran Ireland Israel Italy Japan Kazakhstan Lithuania Malta Namibia Netherlands New Zealand Norway Pakistan Palestine Peru Philippines Poland Russia Singapore South Africa Sweden Switzerland Taiwan Tanzania United Kingdom United States Uruguay

Taxes provide the most important revenue source for the Government of the People's Republic of China. As the most important source of fiscal revenue, tax is a key component of macro-economic policy, and greatly affects China's economic and social development. With the changes made since the 1994 tax reform, China has preliminarily set up a streamlined tax system geared to the socialist market economy.

China's tax revenue came to 11.05 trillion yuan (1.8 trillion U.S. dollars) in 2013, up 9.8 percent over 2012.^[1][2] The 2017 World Bank "Doing Business" rankings estimated that China's total tax rate for corporations was 68% as a percentage of profits through direct and indirect tax. As a percentage of GDP, according to the State Administration of Taxation, overall tax revenues were 30% in China.^[3]

The government agency in charge of tax policy is the Ministry of Finance. For tax collection, it is the State Administration of Taxation.

As part of a US$586 billion economic stimulus package in November 2008, the government planned to reform the VAT, stating that the plan could cut corporation taxes by 120 billion yuan.^[4]

Types of taxes

Under the current tax system in China, there are 26 types of taxes, which, according to their nature and function, can be divided into the following 8 categories:

• Turnover taxes. This includes three kinds of taxes, namely, Value-Added Tax, Consumption Tax and Business Tax. The levy of these taxes are normally based on the volume of turnover or sales of the taxpayers in the manufacturing, circulation or service sectors.
• Income taxes. This includes Enterprise Income Tax (effective prior to 2008, applicable to such domestic enterprises as state-owned enterprises, collectively owned enterprises, private enterprises, joint operation enterprises and joint equity enterprises) and Individual Income Tax. These taxes are levied on the basis of the profits gained by producers or dealers, or the income earned by individuals. Please note that the new Enterprise Income Tax Law of the People's Republic of China has replaced the above two enterprise taxes as of 1 January 2008.
• Resource taxes. This consists of Resource Tax and Urban and Township Land Use Tax. These taxes are applicable to the exploiters engaged in natural resource exploitation or to the users of urban and township land. These taxes reflect the chargeable use of state-owned natural resources, and aim to adjust the different profits derived by taxpayers who have access to different availability of natural resources.
• Taxes for special purposes. These taxes are City Maintenance and Construction Tax, Farmland Occupation Tax, Fixed Asset Investment Orientation Regulation Tax, Land Appreciation Tax, and Vehicle Acquisition Tax. These taxes are levied on specific items for special regulative purposes.
• Property taxes. This encompasses House Property Tax, Urban Real Estate Tax, and Inheritance Tax (not yet levied).
• Behavioural taxes. This includes Vehicle and Vessel Usage Tax, Vehicle and Vessel Usage License Plate Tax, Stamp Tax, Deed Tax, Securities Exchange Tax (not yet levied), Slaughter Tax and Banquet Tax. These taxes are levied on specified behaviour.
• Agricultural taxes. Taxes belonging to this category are Agriculture Tax (including Agricultural Specialty Tax) and Animal Husbandry Tax which are levied on the enterprises, units and/or individuals receiving income from agriculture and animal husbandry activities.
• Customs duties. Customs duties are imposed on the goods and articles imported into and exported out of the territory of the People's Republic of China, including Excise Tax.

Tax legislation

State organs that have the authority to formulate tax laws or tax policy include the National People's Congress and its Standing Committee, the State Council, the Ministry of Finance, the State Administration of Taxation, the Tariff and Classification Committee of the State Council, and the General Administration of Customs.

Tax laws are enacted by the National People's Congress, e.g., the Individual Income Tax Law of the People's Republic of China; or enacted by the Standing Committee of the National People's Congress, e.g., the Tax Collection and Administration Law of the People's Republic of China.

The administrative regulations and rules concerning taxation are formulated by the State Council, e.g., the Detailed Rules for the Implementation of the Tax Collection and Administration Law of the People' s Republic of China, the Detailed Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, the Provisional Regulations of the People's Republic of China on Value Added Tax.

The departmental rules concerning taxation are formulated by the Ministry of Finance, the State Administration of Taxation, the Tariff and Classification Committee of the State Council, and the General Administration of Customs, e.g., the Detailed Rules for the Implementation of the Provisional Regulations of the People's Republic of China on Value Added Tax, the Provisional Measures for Voluntary Reporting of the Individual Income Tax.

The formulation of tax laws follow four steps: drafting, examination, voting and promulgation. The four steps for the formulation of tax administrative regulations and rules are: planning, drafting, verification and promulgation. The four steps mentioned above take place in accordance with laws, regulations and rules.

Besides, the laws of China stipulates that within the framework of the national tax laws and regulations, some local tax regulations and rules may be formulated by the People's Congress at the provincial level and its Standing Committee, the People's Congress of minority nationality autonomous prefectures and the People's Government at provincial level.

The following table summarises up the current tax laws, regulations and rules and relevant legislation in China.

Foreign investment taxation

There are 14 kinds of taxes currently applicable to the enterprises with foreign investment, foreign enterprises and/or foreigners, namely: Value Added Tax, Consumption Tax, Business Tax, Income Tax on Enterprises with Foreign Investment and Foreign Enterprises, Individual Income Tax, Resource Tax, Land Appreciation Tax, Urban Real Estate Tax, Vehicle and Vessel Usage License Plate Tax, Stamp Tax, Deed Tax, Slaughter Tax, Agriculture Tax, and Customs Duties.

Hong Kong, Macau and Taiwan and overseas Chinese and the enterprises with their investment are taxed in reference to the taxation on foreigners, enterprises with foreign investment and/or foreign enterprises. In an effort to encourage inward flow of funds, technology and information, China provides numerous preferential treatments in foreign taxation, and has successively concluded tax treaties with 60 countries (by July 1999): Japan, the USA, France, UK, Belgium, Germany, Malaysia, Norway, Denmark, Singapore, Finland, Canada, Sweden, New Zealand, Thailand, Italy, the Netherlands, Poland, Australia, Bulgaria, Pakistan, Kuwait, Switzerland, Cyprus, Spain, Romania, Austria, Brazil, Mongolia, Hungary, Malta, the UAE, Luxembourg, South Korea, Russia, Papua New Guinea, India, Mauritius, Croatia, Belarus, Slovenia, Israel, Vietnam, Turkey, Ukraine, Armenia, Jamaica, Iceland, Lithuania, Latvia, Uzbekistan, Bangladesh, Yugoslavia, Sudan, Macedonia, Egypt, Portugal, Estonia, and Laos, 51 of which have been in force.

Tax governance

As of 2007, a paper reported that about two-thirds of tax revenue was spent at the local level and that "the ratio of central revenue to total tax revenues reached a low of 22 per cent in 1993, before rising to the 50 per cent level following the 1994 tax reform".^[6]:46

Revenue statistics

The table details China's revenue statistics from 1952 to 1997.

Note: For three years, the tax revenue exceeded the fiscal revenue due to the excessive amount of losses by enterprises that largely reduced the fiscal revenue.

See also

• State Administration of Taxation
• General Administration of Customs
• Ministry of Finance
• List of Chinese administrative divisions by tax revenues

References

• An Overview of China's Tax System. 10-27-2007. State Administration of Taxation.
• Tax System of the People's Republic of China. Beijing Local Taxation Bureau.

Further reading

• Liu, Zuo (2006). Taxation in China. Cengage Learning Asia. ISBN 981-254-438-0.
• Li, Jinyan (1991). Taxation in the People's Republic of China. Greenwood Press. ISBN 0-275-93688-0.
• Brean, Donald (1998). Taxation in Modern China. Routledge. ISBN 0-415-92018-3.
• Bahl, Roy (1998). Taxation Reform in China. University of Michigan Press. ISBN 0-472-59003-0.
• Wang, Xuanhui (1998). Taxation in China 1997/98. Sweet & Maxwell. ISBN 962-661-003-4.
• Gelatt, Timothy (1986). Corporate and Individual Taxation in the People's Republic of China. Sweet & Maxwell. ISBN 0-85121-057-0.
• Bernstein, Thomas; Xiaobo Lü (2003). Taxation without Representation in Contemporary Rural China. Cambridge University Press. ISBN 0-521-81318-2.
• Han Liang Huang (2003). The Land Tax in China. University Press of the Pacific. ISBN 1-4102-0867-2.
• Li, Jian; Alan Paisey (2007). Transfer Pricing Audits in China. Palgrave Macmillan. ISBN 0-230-00196-3.
• Wang, Shaoguang; Angang Hu (2001). The Chinese Economy in Crisis: State Capacity and Tax Reform. M.E. Sharpe. ISBN 0-7656-0766-2.
• Zhang, Xin (2003). Law and Practice of International Tax Treaties in China. Wildy, Simmonds and Hill Publishing. ISBN 1-898029-62-8.
• Environmental Taxes: Recent Developments in China and Oecd Countries. OECD. 1999. ISBN 92-64-17092-8.
• Jin, Chaowu (2006). Regulatory Environment of Chinese Taxation. William S Hein & Co. ISBN 0-8377-3325-1.
• China Tax Guide. USA Ibp. 2003. ISBN 0-7397-6280-X.
• Dimancescu, Katherine (2006). China Tax and Financial Planning Briefing. WorldTrade Executive. ISBN 1-893323-87-0.
• Yu, Bingqing (1999). Law of the People's Republic of China on the Administration of Tax Collection. Foreign Languages Press. ISBN 7-119-02477-9.
• Fulton, Trish; Jinyan Li; Dianqing Xu (1998). China's Tax Reform Options. World Scientific Publishing. ISBN 981-02-3447-3.
• Gensler, Howard; Jiliang Yang; Yongfu Li (1998). A Guide to China's Tax and Business Laws. Sweet & Maxwell Asia. ISBN 962-661-122-7.
• China Master Tax Guide. Kluwer Law International. 2005. ISBN 90-411-2424-1.
• Moser, Michael; Winston K. Zee (1999). China Tax Guide. OUP China. ISBN 0-19-590610-1.
• Gensler, Howard (1998). China Tax and Accounting Manual. Asia Law & Practice. ISBN 962-936-035-7.
• Farah, Paolo Davide. "China's Role and Contribution in The Global Governance of Climate Change: Institutional Adjustments for Carbon Tax Introduction, Collection and Management in China". JOURNAL OF WORLD ENERGY LAW AND BUSINESS, Oxford University Press, Volume 8, Issue 6, November 2015. SSRN 2695612.

External links

• The Economist. China's tax system. April 12, 2007.
• NHGlobalPartners. VAT system in China explained. July 2, 2018.