China’s Current Tax System – Revenue Allocation between the Central Government and the Local Governments

Currently, the taxes and duties in China are respectively administered by financial department, tax administration and customs administration.

(1) The items that are collected and administered by the offices of SAT include: VAT; Consumption Tax; Business Tax, Income Tax and City Maintenance and Construction Tax consolidatedly paid by the railway department, the headquarters of various banks, and the headquarters of various insurance companies; the additional 3% Business Tax paid by financial and insurance enterprises; Income Tax on central enterprises; Income Tax on joint operation enterprises and joint stock enterprises with investment from both the central and local enterprises and/or institutions; Income Tax on local banks and non-bank financial enterprises; Income Tax and Resource Tax on offshore oil enterprises; Income Tax on enterprises with foreign investment and foreign enterprises; Security Exchange Tax (i.e., the Stamp Tax levied on security transactions prior to the commencement of Security Exchange Tax); late payment fines, late payment collection and fines with respect to the central taxes.

(2) The items that are collected and administered by local tax bureau are: Business Tax; City Maintenance and Construction Tax (excluding the part collected by the SAT); Income Tax on local government’s enterprises, collective enterprises and private enterprises; Individual Income Tax; Resource Tax; City and Township Land Use Tax; Farm Land Occupation Tax; Fixed Assets Investment Orientation Regulation Tax; Land Appreciation Tax; House Property Tax; Urban Real Estate Tax; Vehicle and Vessel Usage Tax; Vehicle and Vessel Usage Plate Tax; Stamp Tax; Deed Tax; Slaughter Tax; Banquet Tax; Agriculture Tax and Animal Husbandry Tax and their local surtaxes; Inheritance Tax (not yet legislated); local tax late payment fines, collection of late payment and fines. In most part of China, the Agriculture Tax and Animal Husbandry Tax and their local surtaxes, Deed Tax, Farmland Occupation Tax are collected and administered by the financial departments of the local governments.

By the beginning of 1999, the numbers of taxpayers registered with the SAT the local tax bureau are respectively 11.247 million and 13.03 million. In order to strengthen tax collection and administration, reduce administrative costs, avoid work overlapping and simplify tax payment for the convenience of taxpayers, on some occasions, the SAT and the local tax bureau may entrust each other for collecting certain taxes on behalf.

(3) In most area of China, the Agriculture Tax, Animal Husbandry Tax and its Local surtax, Deed Tax and Farmland Occupation Tax are now collected and administered by the financial departments of Local governments.

(4) The items that are collected and administered by the Customs Department are: Customs duties; import duty on luggage and postal articles. In addition, the Customs Department also collects the VAT and Consumption Tax the stage of importation or exportation on behalf of the State Administration of Taxation.