Legal Rules on Consumption Tax

Legal Rules on Consumption Tax
Consumption tax refers to a turnover tax levied on specific consumer goods and consumption acts at specific stages. Specifically, it refers to a turnover tax levied on entities and individuals engaged in the production, entrusted processing, and importation of taxable consumer goods based on the amount or quantity of their consumption of consumer goods, or the combination of sales amount and sales quantity. The newly revised Provisional Regulations of the People's Republic of China on Consumption Tax (hereinafter referred to as the "Provisional Regulations on Consumption Tax") were passed at the 34th Executive Meeting of the State Council on November 5, 2008, and came into effect on January 1, 2009.
(I) Taxpayers of consumption tax
Consumption tax is a type of tax levied based on the turnover of specific consumer goods. The taxpayers of consumption tax refer to the entities and individuals that are producers, entrusted processors, or importers of consumer goods stipulated in the Provisional Regulations on Consumption Tax within the territory of China, and other entities and individuals that sell the consumer goods stipulated in those Regulations as designated by the State Council.
(II) Incidence of taxation of consumption tax
The Provisional Regulations on Consumption Tax expressly stipulates that taxable consumer goods subject to consumption tax are:
(1) Certain special consumer goods that may damage human health, social order, ecological environment, etc., due to excessive consumption, such as cigarettes, alcohol, firecrackers, and fireworks;
(2) Luxury goods and non-necessities of life, such as precious jewelry, pearls, jades, cosmetics, and skin care and hair care products;
(3) High energy consumption and high-end consumer goods, such as motorcycles and cars;
(4) Consumer goods that use and consume non-renewable and irreplaceable scarce resources, such as gasoline and diesel oil; and
(5) Consumer goods that have broad tax bases are widely consumed, do not affect the basic livelihood of residents after taxation, and have certain financial significance, such as automobile tires.
(III) Consumption tax rate
Consumption tax applies proportional tax rate and fixed tax rate. Fixed tax rate is applicable to rice wine, beer, gasoline, and diesel based on their quantity, for example, RMB 240 per ton for rice wine. Proportional tax rate is applicable to other taxable consumer goods at ten levels of ad valorem rates, with the highest being 56% for Class A cigarettes, etc., and the lowest being 3% for small buses with a cylinder capacity of less than 2000 milliliters, etc.
(IV) Calculation of tax payable
The amount of consumption tax is calculated based on quantity or at a price-based rate, or by a compound method combining both quantity and price. The amount of consumption tax is calculated as follows:
Tax payable calculated at a price-based rate = sales amount * proportional tax rate
Tax payable calculated based on quantity = sales quantity * fixed tax rate
Tax payable calculated by the compound method = sales amount * proportional tax rate + sales quantity * fixed tax rate
The sales quantity of taxable consumer goods sold by taxpayers is calculated in RMB. Taxpayers who settle their sales in currencies other than RMB shall calculate the tax payable by converting the foreign exchanges into RMB at the market price.
(V) Tax exemption
Taxpayers exporting taxable consumer goods are exempt from consumption tax, unless otherwise stipulated by the State Council. The tax exemption measures for exporting taxable consumer goods shall be formulated by the finance and tax authorities of the State Council.
(VI) Payment of taxes
1. Tax payment places
Unless otherwise stipulated by the State, a taxpayer who sells taxable consumer goods or produces taxable consumer goods for their own use shall declare and pay taxes to the tax authority in the place where its premise or domicile is located.
For taxable consumer goods entrusted for processing, the trustee shall pay consumption tax to the tax authority in the place where its premise or domicile is located.
For imported taxable consumer goods, the importer or their agent shall declare and pay taxes to the customs at the place of declaration.
2. Tax payment period
The tax payment period of consumption tax shall be 1 day, 3 days, 5 days, 10 days, 15 days, 1 month, or 1 quarter. A taxpayer shall pay taxes over the tax payment periods determined by the competent tax authority based on the amounts of taxes payable, or pay taxes on a transaction basis if their taxes cannot be assessed in regular periods.
A taxpayer shall declare and pay taxes within 10 days from the expiration date if their taxes are payable on a monthly or quarterly basis, or prepay taxes within 5 days from the expiration date and declare and pay them within 10 days from the first day of the following month if their taxes are payable within a period of 1 day or 3, 5, 10, or 15 days.
A taxpayer importing taxable consumer goods shall pay taxes within 15 days from the date when the customs issues a Special Reminder for Customs Import Consumption Tax.
(VII) Taxation administration
The collection and management of consumption tax shall be subject to the applicable provisions of The Law of the People's Republic of China on the Administration of Tax Collection and the Provisional Regulations on Consumption Tax.
Consumption taxes shall be collected by the tax authorities, and the consumption taxes on imported taxable consumer goods shall be collected by the customs.
Consumption taxes on taxable consumer goods carried or mailed into China by individuals shall be levied together with tariff. The specific measures shall be formulated by the Customs Tariff Commission of the State Council though consultation with other competent authorities.
Where the taxable price of a taxpayer's taxable consumer goods is significantly low absent good cause shown, the taxable price shall be determined by the competent tax authority.
For taxable consumer goods entrusted for processing, the trustee shall withhold and pay the taxes on the behalf of the principal upon delivery to the principal. Where taxable consumer goods entrusted for processing are used by the principal for continuous production of taxable consumer goods, the tax payable may be deducted according to regulations.
For imported taxable consumer goods, taxes shall be paid upon customs declaration for import.