China Taxation: Interpretation

The People’s Republic of China has established what is perhaps the most sophisticated and complex taxation system in the world today. This system of taxation has an impact on almost every business and investment decision. Decisions a business enterprise must make, such as the form it will take (i. e. , sole proprietorship, partnership, or company), the scope and nature of its operations, and the manner in which it will be terminated cannot be made without consideration of the tax consequences.

The purpose of this book is to introduce the reader to the People’s Republic of China taxation, including Enterprise Income Tax, Individual Income Tax, Value-added Tax, Business Tax, etc. A corollary objective of the author is to aid the readers in the development of their tax awareness (i. e. , ability to recognize tax problems, pitfalls, and planning opportunities). Such awareness is not only an important attribute of accountants and lawyers—it is essential for everyone who chooses a career in business. 1. 1 THE NATURE OF A TAX.

A tax is a levy imposed upon a taxpayer (an individual or legal entity) to support the government, anyone who failure to pay it would be punished by law. Thus, what a tax does is to provide a means through which the government derives a majority of the revenues necessary to keep the government in operation. A tax, however, is not merely a source of revenue. As discussed in a later section of this chapter, taxes have become a powerful instrument that policymakers apply to attain justice objective as well as economic objective.

A tax normally has one or more of the following characteristics: (1) There is no direct relationship between the exaction of revenue and any benefit to be received 1 by the taxpayer. Thus, a taxpayer cannot trace his or her tax payment to an armored car, a highway, a weather satellite, or any of the myriad expenditures of government. (2) Taxes are levied on the basis of predetermined criteria. In other words, taxes can be objectively determined, calculated, and even planned around.

(3) Taxes are levied on a recurring or predictable basis. Most taxes are levied on a monthly basis or an annual basis, although some, like the Land Appreciation Tax, are levied only once. (4) Taxes should be distinguished from fines or penalties. A fine or a penalty is a measure, which is specifically designed to control or stops a particular activity. For instance, at one time the department of human resources and social security imposed a charge on the products of child labor.

This charge was specifically aimed at stopping the use of children in manufacturing and thus was a fine instead of a tax. Also, taxes can be distinguished from licenses and fees are payments made for some special privilege granted or services rendered. The major types of taxes imposed by taxing authorities within The People’s Republic of China are discussed later in other chapters. As will be noted, one or more of the above characteristics can be found in each of these various taxes. 1. 2 THE OBJECTIVES OF TAXATION.

In subsequent chapters, the specific provisions that must be followed to compute the amount of tax payable will be discussed in detail. Some may view this discussion as a hopeless attempt to explain what seems to be an endless barrage of boring rules—rules that, despite their apparent lack of “rhyme or reason,” must be considered if the final tax liability is to be determined. We may often feel frustrated that the rules of tax law are not completely founded when studying. However, each provision of the tax law originated with some objectives.

The knowledge of the objectives underlying a particular provision is an important first step toward a comprehension of the provision. In studying taxation, it becomes apparent that many provisions have been enacted with similar objectives. The following discussion reviews some of the objectives of taxation that often serve as the reasons behind the rule. 1. 2. 1 Economic Objective At first glance, it seems clear that the primary objective of taxation is to provide the resources necessary to fund governmental expenditures.

However, this is not entirely true. As many 2 economists have pointed out, any central government has the power to control the money supply can satisfy its revenue needs by merely creating money. Nevertheless, complete reliance on the printing press of the People’s Bank of China to provide the needed resources is not a viable alternative. If the expenditures of government were financed predominantly with funds that created rather than those obtained through taxation, excess demand would result, which in turn would cause prices to rise, or inflation.

Thus, taxation in serving a revenue function also operates along with other instruments of policy to attain a stable price level. The role of taxation in carrying out economic policy extends beyond the realm of revenue raising and price stability. Taxation is a major tool adopted by the government to attain satisfactory economic growth. The pilot of switching from Business Tax to Value-added Tax is illustrative. A major purpose of this pilot was directed toward revitalizing the growth of the transportation and certain areas of modern services industries.

The pilot significantly lowered the tax burden of these industries to spur the economy out of a recession. Its objective was to avoid the double taxation of Value-added Tax and Business Tax on these industries. By so doing, the taxpayers of these industries would purchase more fixed assets and thus increase aggregate demand, resulting in economic growth. The government believes that economic environment can be optimized by adopting the tax system.

For example, to stimulate the investment toward high technology enterprise, Venture capital investment enterprises has made equity investment in an unlisted new and high technology enterprise of small and medium size for 2 or more years, 70% of the investment made by the venture capital investment enterprise can be deducted from taxable income at the year when venture capital investment enterprise has held equity shares for two years, thus enabling shorten the payback period of venture capital investment enterprise.

What is more, to promote the innovation capacity of enterprises, the Research and Development expenditures incurred for the purpose to develop new technologies, new products and new crafts could be subject to 50% more additional deduction after being deducted in full amount in light of actual situation when did not form intangible assets and accounted into current term profit and loss, or be subject to amortization based on 150% of intangible asset costs when formed intangible assets.

The government does not always use incentives to encourage certain types of activity to gain economic goals. Sometimes, imposing a heavy tax would be a viable alternative to discourage or 3 suppress certain economic activities. For example, to inhibit the speculation on real estate, the part of the appreciation amount exceeding 200% of the sum of deductible items will be levied at 60% high tax rate when transfer State-owned land use rights, while the part of the appreciation amount not exceeding 50% of the sum of deductible items just be levied at 30% lower tax rate.

As will become clear in later chapters, the tax law is replete with rules designed to encourage, stimulate, or discourage, curb various business activities as government has deemed necessary over the years. 1. 2. 2 Justice Objective The tax system is used to achieve not only economic objective but justice objective as well. In essence, tax is the redistribution of social wealth, so justice lies at the heart of tax, since what some think of as just are regarded by others as completely unjust. In a free market, some individuals earn greater amounts of income and capital than others.

Once wealth has been acquired, it tends to grow through the reinvestment of investment income received. This can lead to the rich getting richer and the poor getting poorer, with economic power becoming concentrated in relatively few hands. Government must make the value judgment that these trends should be countered by taxation policies which redistribute income and wealth away from the rich towards the poor. That is said, justice would be referred to as vertical equity instead of horizontal equity. This implies that taxpayers will be treated differently when they are not in the same situation.

For that purpose, there are two major obstacles must be solved. First, how to determine the economic situation of taxpayer, i. e. , the ability of taxpayer; Second, there must be reasonable distinctions between those who are in different situations. Ability of taxpayer is the composite of numerous factors including property, income, family situation, etc. Clearly, no one measure captures all of these factors. This being so, tax specialists generally have agree that there are three common criteria to measure the ability of taxpayer, including property, goods and income, of which income would be the best objective criteria.

That is why the income tax, including Enterprise Income Tax and Individual Income Tax, continued to improve its share in fiscal revenue in the past few years. The second obstacle in implementing justice concerns the treatment of taxpayers who are differently situated. In terms of income, the problem may best be explained by reference to two 4 taxpayers, A and B. If A’s income (e. g. , RMB100, 000) exceeds B’s (e. g. , RMB20, 000),it is assumed that A has more ability to pay and thus should pay more tax.

The dilemma posed is not whether A and B should pay differing amounts of tax, but rather, what additional amount may be fairly charged to A. If a proportional tax of five percent is levied against A and B, A pays RMB5, 000 (5% of RMB100, 000) and B pays RMB1, 000 (5% of RMB20, 000). While application of this tax rate structure results in A paying RMB4, 000 more than B absolutely, A pays the same amount in relative terms, i. e. , they both pay the same 5 percent. Those charged with the responsibility of developing tax policy have concluded that paying more tax in absolute terms does not adequately serve the justice objective.

For this reason, a progressive tax rate structure is used, requiring relatively more tax to be paid by those having more income. With respect to A and B above, this structure would require that A pay a greater percentage of his income than B. The above discussion is but a brief glimpse of how justice considerations have shaped our tax law. Interestingly, most of the provisions mentioned have been enacted in the past 5 years. During this time, the government has relied increasingly on the tax system as a means to strike at the nation’s ills, especially, the fast-growing gap between rich and poor.

Whether the tax law can be used successfully in this manner is unclear, however, we believe this is the right way. 1. 2. 3 Efficient Objective Although justice and economic objectives provide the rationale for much of our tax law, many provisions can be explained in terms of efficient principle, that is, the tax should place the minimum economic cost on society and markets while provide the right incentives growth. Most tax experts agree that there are at least three characteristics that an ‘efficient’ tax must meet, although these characteristics may be in conflict with economic and justice objectives:

(1)The tax system should aim to be as non-distortionary as possible. In order to maximize efficiency, the ideal tax policy should be consistent with the principle of ‘fiscal neutrality’ in the sense that it does not interfere with the workings of markets or the decisions of individuals while minimizing disincentive effects on the level of economic activity; and (2) The tax can be administered by the government and the costs of collection are low relative to the tax paid over to the government (i. e. , it is economical to operate); and (3).

The tax is convenient, i.e. , it can be predicted, provide certainty to enable taxpayers to plan, and its administration and compliance can be carried out with the utmost simplicity. 5 1. 3 KEY TAX TERMS Before examining the various types of taxes in more detail, we must first become familiar with basic tax terminology. Some of the more common terms are briefly presented below. 1. 3. 1 Tax Base A tax base is that amount upon which a tax is levied. For instance, in the case of the Enterprise Income Tax, the tax base is taxable income.

Taxable income is the taxpayer’s total income less non-taxable income, exemptions, deductions and the making up of losses of previous years. In the case of the Value-added Tax, the tax base is the increment value of its sale of goods or provision of processing, repair and/or replacements services. In the case of the Real Estate Tax, the tax base is the residual following a subtraction of between 10% and 30% from the original value of the property, or the rental income from the property if the property is leased. In generally, the tax either is collected by ad valorem or by quantity.

Those collected by ad valorem, their tax base would be in the form of value, and however, those collected by quantity, their tax base would be in the form of number, weight, volume or area. For example, the tax base of Vehicle and Vessel Tax is the net tonnage of ship or the length of yacht. 1. 3. 2 Taxation Object The taxation object is the subject matter which should be levied according to the tax law; it is a main mark which a kind of tax distinguishes with another tax. Every kind of tax has its own taxation object; otherwise, the tax will lose the meaning of existence.

For instance, in the case of Enterprise Income Tax, the taxation object of resident enterprise is the income originating both within and outside China. In the case of Value-added Tax, the taxation object is the goods sold in China, the services of processing, repair and repair provided in China, and goods imported within the territory of China. In the case of the Real Estate Tax, the taxation object is housing and so on. In the meantime, some taxes will be classified as a category of tax because of the similarity in taxation object.

For example, because the taxation objects of Value-added Tax, Business Tax, Consumption Tax and Custom Duty are similar in connects with the commodity production, circulation and consumption, we classified them as a category, called Turnover Tax. All in all, the taxation object is one of the important bases in distinguishing categories of taxes. Taxation object determines the scope subject to a particular tax. While the tax base determines the 6 value or quantity of the particular taxable object which has been identified by tax law, helps to calculate the amount of tax payable.

1. 3. 3Tax Rate Tax rate is the proportion of tax payable to the tax base, the standard of calculating tax liability, which is stipulated by tax law before tax collection or paying. To compute a tax, it is necessary to know the tax base and the applicable tax rate. The tax payable is then computed by multiplying the tax base by the tax rate: Tax payable=Tax base? Tax rate There are two types of tax rates: one is fixed rate represented by absolute number on tax base, applicable to specific duties, for instance, the consumption tax rate of unleaded petrol is 0.

20 Yuan/Liter; the other is represented by relative number, i. e. , the percentage of the tax base, applicable to ad valorem tax, which mainly has flat rate and progressive rate. ? Flat rate A flat rate is one that remains at a constant percentage regardless of the size of the tax base. The adoption of flat rate would simplify the calculating of tax payable, reduce the cost of collection, and make the tax meet the requirement of efficient objective.

However, it can’t impose different treatment on those who are in different situations; it’s difficult to meet the requirement of justice objective. ? Progressive rate A progressive rate is one in which an increasing percentage rate is applied to increasing increments of the tax base. The progressive rate reflects the embedding in the tax rate of justice criterion. Recall that according to this criterion, taxpayers should pay according to their ability to pay the tax. The use of progressive rate, wherein people with higher taxable income levels pay higher tax rate, promotes vertical equality.

The tax rate of Individual Income Tax on incomes from wages and salaries, incomes of private industrial and commercial households from their productions and business operations and incomes from remuneration for labor services follow a progressive rate on their taxable income. Example 1. 1 Mr. Zhang and Ms. Fang are employees in an enterprise. The wage from the enterprise of Mr. Zhang in March, 2012 is RMB 4,000, while the wage of Ms. Fang is RMB 9,000. The Individual Income Tax levied from Mr. Zhang and Ms. Fang will be: 7 The monthly taxable income of Mr.

Zhang=4,000-3,500=RMB500 The monthly taxable income of Ms. Fang=9,000-3,500=RMB5, 500 (Note: The Monthly Taxable Income in here refers to the balance after deducting RMB3, 500 from the monthly revenue and any additional deductible fee. ) Tax Rate Schedule Level Taxable Income 1 2 3 4 5 6 7 ? 0-? 1,500 ? 1,501-? 4,500 ? 4,501-? 9,000 ? 9,001-? 35,000 ? 35,001-? 55,000 ? 55,001-? 80,000 ? 80,000 and above Tax Rate 3% 10% 20% 25% 30% 35% 45% Total: Mr. Zhang Taxable Income ? 500 Tax ? 15 Ms. Fang Taxable Income ? 1,500 3,000 1,000 Tax ? 45 300 200 ?500 ?15 ?5,500 ?545 The tax payable of Mr.

Zhang is RMB15, and the tax payable of Ms. Fang is RMB545. It’s complicated to calculate the tax payable when there are more levels. To simplify the calculation, the fast calculation deduction will be applied. The process of Example 1 will be: Tax Rate Schedule Level 1 2 3 4 5 6 7 Taxable Income ? 0-? 1,500 ? 1,501-? 4,500 ? 4,501-? 9,000 ? 9,001-? 35,000 ? 35,001-? 55,000 ? 55,001-? 80,000 ? 80,000 and above Tax Rate 3% 10% 20% 25% 30% 35% 45% Fast Calculation Deduction 0 105 555 1,005 2,755 5,505 13,505 The tax payable of Mr. Zhang=Taxable income ? Level Tax Rate-Fast Calculation Deduction=500?

3%-0=RMB15 The tax payable of Ms. Fang=Taxable income ? Level Tax Rate-Fast Calculation Deduction =5,500? 20%-555=RMB545 There is another special progressive rate that its tax rate increasing depends on the increasing increments ratio of the tax base. The Value-added Tax on Land adopts 4 levels of progressive rates according to the value-added ratio of land. 8 Tax Rate Schedule Level Value-added ratio 1 2 3 4 ? 50% >50%, and ? 100% >100%, and ? 200% >200% Tax Rate 30% 40% 50% 60% Fast Calculation Factor 0% 5% 15% 35% Example 1. 2K Co. transferred its building to M Co.

together with the owning use-right, and gained the consideration of RMB 10,000,000. The cost of the building plus transferring taxes (including Business Tax, City Maintenance and Construction Tax, Additional Fund of Education, Stamp Duty)are RMB 4,000,000. The Value-added Tax on Land of K Co. will be: Value-added ratio= , , , , , , =150% Tax payable=Value-added? Level Tax Rate- Deduction? Fast Calculation Factor =6,000,000? 50%-4,000,000? 15% =RMB 2,400,000 1. 3. 4 Taxpayer Taxpayers are individuals or entities which are obligated to pay taxes in accordance with the tax law.

Who will be identified as a taxpayer is generally determined by taxation object. For example, the owners or users of housing would be the taxpayers of Real Estate Tax; the companies obtained income derived from China would be the taxpayers of Enterprise Income Tax. The term of taxpayer resolve the question of who will be levied by government subject to tax law. Taxpayers are divided into natural person and legal person. A natural person is a real human being, including Chinese citizens, aliens and stateless persons.

A legal person, as opposed to a natural person, is an organization that has capacity for civil rights and capacity for civil conduct and independently enjoys civil rights and assumes civil obligations in accordance with the law. Company is a common type of legal person. Withholding agent is a closely concept relating with taxpayer. A withholding agent is any person that has the control, receipt, custody, disposal or payment of any items of a taxpayer subject to withholding; the withholding agent is required to deposit any tax withheld and to make the returns prescribed.

The withholding agents are obligated to withhold and remit tax or levy and remit tax in 9 accordance with laws. The obligation of levying and remitting tax only can be found in Tentative Regulations on Consumption Tax, ‘For taxable consumer goods sub-contracted for processing, the tax shall be withheld by the sub-contractor upon delivery to the contractor unless the subcontractor is a natural person’, i. e. , the sub-contractor shall levy the tax from the contractor and remit it to tax authority when deliver the taxable consumer goods. It should be noted that taxpayer is not necessarily the bearer of tax.

The incidence of duty of indirect taxes, such as Turnover Tax (including Value-added Tax, Business Tax, Consumption Tax, and Custom Duty), can pass to the buyer via price. 1. 3. 5 Tax-inclusive and Tax-exclusive Tax rates can be presented differently due to differing definitions of tax base, which can make comparisons between tax systems confusing. Some tax systems include the taxes owed in the tax base (tax-inclusive), while other tax systems do not include taxes owed as part of the tax base (tax-exclusive). Value-added Tax is the only one which is quoted exclusively and other taxes are quoted inclusively.

If the tax base of Value-added Tax includes the tax, the first step to calculate tax payable should restore it to tax-exclusive base. The formula is: Tax-exclusive base=Tax-inclusive base? (1+Tax rate) On the contrary, if the tax base of other tax excludes the tax, the first step should restore it to tax-inclusive base. The formula is: Tax-inclusive base=Tax-exclusive base? (1-Tax rate) Example 1. 3 L Co. is a Value-added Tax general taxpayer; it sold 2TV to the consumer in February 2012, and issued a general invoice indicated the price of RMB 10,000.

The output tax of Value-added Tax will be: The price of general invoice include Value-added Tax, we must restore it to tax-exclusive first, and then calculate the output tax. The Value-added Tax rate of TV is 17%. Output tax=10,000? (1+17%) ? 17%=RMB1, 453 1. 4 THE CLASSIFICATION OF TAXES At present, China taxation is comprised of 19 categories tax, i. e. (1) Enterprise Income Tax, (2) Individual Income Tax, (3) Value-added Tax, (4) Consumption Tax, (5) Business Tax, (6) City Maintenance and Construction Tax,(7) Resource Tax, (8) Urban and Township Land Use Tax, 10.

(9)House Property Tax, (10) Farmland Occupation Tax, (11) Land Appreciation Tax, (12) Vehicle Purchase Tax, (13) Vehicle and Vessel Usage Tax, (14) Vehicle and Vessel Usage License Plate Tax, (15) Stamp Tax, (16) Deed Tax, (17) Tobacco Leaf Tax, (18) Customs Duty, and (19) Fixed Assets Investment Orientation Regulatory Tax. Of which, the Fixed Assets Investment Orientation Regulatory Tax was suspended to be collected as from 2000 as determined by the State Council. Proper classification of such sundry taxes is essential to understand the nature and significance of different taxes.

Usually, taxes are classified on the basis of form, nature, aim and methods of taxation. The following classifications are common in China tax systems: 1. 4. 1 Turnover tax, income tax, resource tax, property tax and behavior tax Turnover tax, income tax, resource tax, property tax and behavior tax are the official taxes classification of China according to taxation object. ? Turnover tax The levy of these taxes is normally based on the volume of turnover or sales of the taxpayers in the manufacturing, circulation or service sectors.

It includes 7 kinds of taxes, namely, (1) Value-added Tax, (2) Consumption Tax, (3) Business Tax, (4) City Maintenance and Construction Tax (additional tax of Value-added Tax, Consumption Tax and Business Tax), (5) Vehicle Purchase Tax, (6) Tobacco Leaf Tax and (7) Customs Duty. As illustrated by CHART 1. 2, Turnover taxis the main source of state revenue. ? Income tax Income tax is levied on the basis of the profits gained by producers or dealers, or the income earned by individuals, includes (1) Enterprise Income Tax and (2) Individual Income Tax. ? Resource tax.

It consists of (1) Resource Tax, (2) Urban and Township Land Use Tax and (3) Farmland Occupation 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. ? Property tax Property tax is a levy on property that the owner is required to pay. The property in here usually refers to land, buildings and personal property. It is comprised of (1) House Property Tax and (2) 11.

Vehicle and Vessel Usage Tax. ? Behavior tax These taxes are levied on specific behavior; include (1) Stamp Tax, (2) Land Appreciation Tax, (3) Deed Tax and (4) Vehicle and Vessel Usage License Plate Tax. 1. 4. 2 Central tax, local tax and shared tax According the revenue sharing system, the revenue of some taxes is directly allocated to the central government; the revenue of some taxes is directly distributed to local governments; while the revenue of some taxes is shared between the central and local governments. Thus, the taxes are divided into central tax, local tax and shared tax on the basis of distribution of tax revenue.

? Central tax The central tax include (1) Domestic Consumption Tax, (2) Customs Duty, (3) Vehicle Purchase Tax, (4) Value-added Tax and Consumption Tax collected by the Customs, (5) Business Tax, Enterprise 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, and (6) Enterprise Income Tax and Resource Tax on offshore oil enterprises. ? Local tax The local taxes include (1) Individual Income Tax, (2) Urban and Township Land Use Tax, (3) Farmland Occupation Tax, (4) Land Appreciation Tax, (5).

House Property Tax, (6) Vehicle and Vessel Usage Tax, (7) Vehicle and Vessel Usage License Plate Tax, (8) Deed Tax, (9) Tobacco Leaf Tax, (10) Resource Tax (exclude the Resource Tax on offshore oil enterprises), (11) Stamp Duty (exclude the Stamp Duty levied on security transactions), (12) Business Tax and City Maintenance and Construction Tax (exclude the Business Tax consolidatedly paid by the railway department, the headquarters of various banks, and the headquarters of various insurance companies), and (13) the Value-added Tax collected in lieu of Business Tax.?

Shared tax The shared tax and its distribution ratio is as follows: (1) Domestic Value-added Tax: 75% for central government and the remaining 25% for local governments; (2) Enterprise Income Tax (exclude the part of central tax): will be determined according the actual tax revenue; 12 (3) Stamp Duty levied on security transactions: 88% for central government and the remaining 12% for local governments. 1. 4. 3 Direct tax and indirect tax The taxes can also be divided into direct tax and indirect tax according to the incidence of taxes.?

Direct tax The tax is said to be a direct when the impact and incidents of a tax are on one and the same person. That is when a person on whom tax is levied is the same who finally bears burden of tax. He can’t shift its burden to some other person. The direct taxes include (1) Enterprise Income Tax, (2) Individual Income Tax, (3) House Property Tax, (4) Deed Tax, (5) Vehicle and Vessel Usage Tax, (7) Vehicle and Vessel Usage License Plate Tax, (8) Urban and Township Land Use Tax and (9) Farmland Occupation Tax.

? Indirect tax If the impact of tax falls on one person and incidents on another, the tax is called indirect tax. The direct taxes include (1) Value-added Tax, (2) Consumption Tax, (3) Business Tax, (4) Customs Duty, (5) Resource Tax, (6) City Maintenance and Construction Tax, (7) Stamp Duty, (8) Vehicle Purchase Tax, (9) Land Appreciation Tax.

1. 5THE SOURCE OF TAX LAW For the time being, the State Organs having authority to formulate tax laws or tax policy mainly include the National People’ s Congress (hereinafter referred to NPC) and its Standing Committee (hereinafter referred to NPCSC), the State Council, the Ministry of Finance, the State Administration of Taxation(hereinafter referred to SAT), the Tariff and Classification Committee of the State Council(hereinafter referred to TCCSC), and the General Administration of Customs(hereinafter referred to GAC). 1. 5. 1 NPC AND NPCSC Article 58 of the P. R. C.

Constitution states, ‘The National People’s Congress and its Standing Committee exercise the legislative powers of the state. ’ It’s clearly that all tax law legislative powers herein should be exercised by NPC and NPCSC, no governmental organs, entities or individuals may be permitted to make decisions without authorization regarding the collection of tax or the cessation there of, the reduction, exemption or refund of tax, or the payment of tax 13 underpaid in violation of the tax laws.

The tax laws enacted by NPC and NPCSC, which have nationaleffectiveness, rank the highest level in the hierarchy of tax laws system. The Law of Enterprise Income Tax and the Law of Individual Income Tax are the tax laws enacted by NPC; the law of the Administration of Tax Levying and the Decision of the Standing Committee of the National People’s Congress on Applying the Interim Regulations on Value-added Tax, Consumption Tax and Business Tax on Foreign-invested Enterprises and Foreign Enterprises are the tax laws enacted by NPCSC. 1. 5. 2 State Council ? Authorized legislation.

With a view to ensuring the smooth progress of the reform of the economic structure and the implementation of the open-up policy, the Third Session of The Sixth National People’s Congress had decided to authorize the State Council to formulate, promulgate and implement, as it is necessary, interim provisions or regulations concerning the reform of the economic structure and the open-up policy in accordance with the Constitution and applicable laws and the basic principles of the relevant decisions of the National People’s Congress and Standing Committee thereof, and to report the same to the Standing Committee of the National People’s Congress for file.

The State Council has formulated th