Tax is the most important source of fiscal revenue of China. It is also an important economic lever utilized by the State to strengthen macro-economic regulation, which produces important impacts on China’ s economic and social development. After the tax system reform in 1994 and the fine-tuning of it in subsequent years, China has preliminarily built up a tax system adaptable to the socialist market economy, which has been playing an important role in assuring China’s fiscal revenue, broadening the opening to the outside world and promoting the sustained, fast and healthy development of China’s national economy.
1. TYPE OF TAXES
Under the current tax system in China, there are 25 types of taxes, which, according to their nature and function, can be divided into the following 8 categories:
a) Category of turnover taxes. It includes 3 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.
b) Category of income taxes. It includes Enterprise Income Tax (applicable to such domestic enterprises as state-owned enterprises, collectively-owned enterprises, private enterprises, joint operation enterprises and joint equity enterprises), Income Tax on Enterprises with Foreign Investment and Foreign 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.
c) Category of resource taxes. It 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.
d) Category of taxes for special purposes. These taxes are City Maintenance and Construction Tax, Farmland Occupation Tax, Fixed Asset Investment Orientation Regulation Tax and Land Appreciation Tax. These taxes are levied on specific items for special regulative purposes.
e) Category of property taxes. It compasses House Property Tax, Urban Real Estate Tax, and Inheritance Tax (not yet levied).
f) Category of behaviour taxes. It 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.
g) Category of agricultural taxes. The taxes belonging to this category are Agriculture Tax (including Agriculture specialty Tax) and Animal Husbandry Tax which are levied on the enterprises, Units and/or individuals receiving income from agriculture and animal husbandry activities.
h) Category of 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.