(c) Taxable Items and Tax Rates

There are two VAT rates in China, a basic rate of 17% and a lower rate of 13%. The sale and import of the following commodities are subject to VAT at the lower rate of 13%: grains, edible vegetable oil, drinking water, heating, air-conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, methane, coal products for domestic use; books, newspapers and magazines; feedstuffs, chemical fertilisers, pesticides, agricultural machinery, agricultural plastic sheeting; and other commodities as specified by the state.

(d) Export Tax Exemption and Rebate

China practices a zero tax rate on exports. There is no export-related tax. Subject to the types of products, tax payments made in respect of the stages preceding export will be partly or fully refunded.

(e) Special VAT Invoice

* General taxpayers may purchase special VAT invoices from the tax authorities. Small-scale taxpayers and non-VAT taxpayers may not purchase or use such invoices.

* General taxpayers selling taxable items must issue special VAT invoices to the buyer. However, for the sale of taxable items to consumers and the sale of duty-free goods or goods for export, no special VAT invoices have to be issued. It is also not mandatory to issue special VAT invoices for the sale of taxable items to small-scale taxpayers.

* Special VAT invoices that are not up to specifications may not be used to claim deduction or exemption for input VAT.

(f) Tax Liability and Payment Period

In the supply of goods or taxable services, the VAT liability arises on the day the taxpayer receives full payment for the transaction or obtains a payment voucher for the transaction. In the case of import goods, VAT

for the transaction. In the case of import goods, VAT liability arises on the day of customs declaration.

The payment period may be one day, three days, five days, ten days, fifteen days or one month, to be determined by the competent tax authorities based on the amount of VAT payable by the taxpayer

2. Consumption Tax

Consumption tax is tax payable on the sales value or volume of taxable consumer goods sold in China by enterprises and individuals engaged in the production, subcontracted processing or importation of any of the following 11 items of goods: cigarettes, alcoholic drinks and alcohol, cosmetics, skin- and hair-care products, fine jewellery and precious stones, firecrackers and fireworks, gasoline, diesel oil, motor vehicle tyres, motorcycles, and small motor cars. It is levied on consumer goods on top of VAT.

Consumption tax is included in the transaction price and is only payable on the production, subcontracted processing and importation of taxable consumer goods. Since consumption tax is included in the transaction price, it is not payable in the subsequent stages such as wholesaling and retailing. The tax is ultimately borne by consumers.

(a) Taxpayer

Payers of consumption tax are enterprises and individuals engaged in the production, subcontracted processing and importation of taxable consumer goods.

(b) Taxable Items and Tax Rates

Consumption tax is payable on 11 taxable items at 25 different tax rates (tax amounts), ranging from 3% to 50%. It is levied by value (ad valorem tariff) or by volume (specific duty) at the production stage; but for white spirits made from cereal and potatoes, beer and cigarettes, they are subject to consumption tax under the combination of by volume and by value. Taxable consumer goods for export are exempt from consumption tax unless otherwisestipulated by the state.

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