(Promulgated by the State Administration of Taxation on June 18, 1997)
With a view to strengthening the administration of the enterprise income tax reduction and exemption (referred to as the tax reduction and exemption hereinafter), promoting the taxpayers' and tax authorities' better implementation of the taxation policy, and giving full scope to the leverage function of the tax reduction and exemption for economic development and adjustment, these Measures are hereby formulated in accordance with the Interim Regulations of the Income Tax of the People's Republic of China Concerning Enterprises, rules for the implementation thereof and the relevant stipulations.
(1) Scope of application and approval for the tax reduction and exemption
All the tax reduction and exemption from the taxable amount in accordance with the tax laws and regulations, and the relevant stipulations by the State Council are within the scope of application and approval for the tax reduction and exemption. No application and approval shall be permitted beyond the stipulated scope.
If the tax reduction and exemption comply with the stipulated scope of application and approval, the taxpayer may apply for the tax reduction and exemption. Implementation shall be effected upon the verification and approval by the tax authorities. Without the verification and approval of the tax authorities, no tax reduction and exemption shall, without exception, be made by the taxpayer on his own.
(2) Application for the tax reduction and exemption
Should the taxpayer apply for the tax reduction and exemption, he shall provide the tax authorities with the following written documents:
1) Application for the tax reduction and exemption, including reasons, scope, number of years, amount, general background of the enterprise, etc.;
2) Financial statements of the taxpayer;
3) A copy of the industrial and commercial license and of the taxation registration;
4) Other relevant documents required by the tax authorities in light of various items for reduction and exemption.
The tax authorities shall proceed the taxpayers' applications at all times. However, the deadline shall be within two months after the end of each calendar year. Overdue application for the tax reduction and exemption shall not be proceeded.
1) It shall be based on the taxation laws, regulations and relevant stipulations of the state.
2) The collective approval system shall be followed on matters regarding tax reduction and exemption are policy sensitive, involve a large amount of money, and have impacts on a wide range of issues.
3) Approval shall be conducted impartially with power not being overstepped and exploited for personal gains.
4) The taxpayer shall go through complete formalities and provide all necessary documentation
5) Timely handing of the applications shall be conducted after the tax authority receives the application of the taxpayers and the upper level authority receives the report from the lower level. Timely notice shall be given to the taxpayers and the lower level authority for failure to meet the stipulations or incomplete formalities.
6) The examination and approval for the tax reduction and exemption which exceed one year shall adopt the one-time system.
(4) Range of power for examination and approval of the tax reduction and exemption
The examination and approval for the tax reduction and exemption shall adhere to the principle of the centralized handling instead of delegating powers to the lower levels. The details are as follows:
1) The tax reduction and exemption for enterprises at the local level shall be examined and approved or determined by the local taxation bureaus of the various provinces, the autonomous regions, the municipals directly under the Central Government and cities listed separately in the national economic plan.
2) The tax reduction and exemption for the enterprises at the national level, the taxpayers suffering from severe natural catastrophes such as wind, fire, water and earthquakes, and new enterprises located in the areas designated by the State "old revolutionary bases, regions of minority nationalities, border areas and poverty regions", if the reduced and exempted amount of income tax reaching or exceeding one million yuan, shall be examined and approved by the State Administration of Taxation. Tax reduction and approved by the State Administration of Taxation. Tax reduction and exemption for other enterprises shall be examined and approved by bureaus of taxation of various provinces, autonomous regions, municipals directly under the central government and cities separately listed in the national economic plan.
(5) The procedure of examination and approval of the tax reduction and exemption
1) Applications for tax reduction and exemption shall be reported from the lower to the higher bodies of the tax authorities. The approval organ shall not accept applications for the tax reduction and exemption from the taxpayers directly.
2) After receiving the applications for the tax reduction and exemption from the taxpayers, the tax authorities must verify the items of the application one by one, put forward the specific suggestions and reports, and submit them to the higher body according to its range of approval power.
3) After the higher tax authority receives the report from the lower body, it shall promptly verify the report or make the approval according to its range of power as stipulated. Special investigations shall be conducted for cases involving large amount of money and having significant impact. Decisions shall be made after verifications.
(6) Supervision of the tax reduction and exemption
The reduced and exempted tax shall be put to proper use as stipulated by the state and conducive to the promotion of the economic development. The tax authorities shall strengthen the supervision and inspection, which include:
1) The taxpayer, who has been approved for the tax reduction and exemption, must, during the period of tax reduction and exemption, submit, in the uniformly stipulated form, the tax reports as well as financial report and statements, and the information concerning the use of the amount of reduced and exempted tax, for the supervision and examination of the tax authorities.
2) When any change of condition for the tax reduction and exemption has taken place, the taxpayer shall make a timely report to the tax authority. After the examination and verification by the tax authority, decisions shall be made on whether the tax reduction and exemption should continue to be given pursuant to laws in light of the changed circumstances.
3) Tax authorities shall make periodic inspections on the state of affairs of the taxpayers' tax reduction and exemption. Where the situation has changed to the extent that the taxpayer is no longer in the position of enjoying the tax reduction and exemption, or the taxpayer has not put the amount of reduced and exempted tax to proper use as stipulated, the tax authority is entitled to terminate the tax reduction and exemption. In the circumstance of gross violation, the corresponding reduced and exempted amount shall be recovered. When the period of tax reduction and exemption ends, the collection of tax shall be resumed from the next day of the date of expiry.
4) If the taxpayer obtains the tax reduction and exemption by means of concealment and fraud, or implements the tax reduction and exemption on their own with reference to the relevant stipulations but without approval from the tax authorities, the case shall be handled according to the stipulations in the Administration Law of the People's Republic of China on Tax Collection and Imposition.
5) Higher level tax authorities should make periodic or non-periodic inspections on the administration of tax reductions and exemptions of the lower-level tax authorities.
(7) Statistics and report to the higher level authorities about the tax reduction and exemption
1) The tax authority shall keep a standing book for the taxpayers' tax reduction and exemption: the date of approval, period of years, amount, and uses.
2) In various localities, a statistical system shall be established to keep periodic statistics of the tax reduction and exemption of their respective locality. The specific format and time shall be determined by the various provinces, the autonomous regions, and the municipals directly under the Central Government and cities listed separately in the national economic plan.
3) Prior to the end of every May, tax bureaus of the various provinces, autonomous regions, municipalities directly under the Central Government and cities listed separately in the national economic plan shall annually report to the State Administration of Taxation about the tax reductions and exemptions. The format of the report is the same as that of "Items of Tax Reduction and Exemption for Enterprises", which is Appendix II of "Returns of the Enterprise Income Tax".
Various localities may make supplementary provisions in light of these Measures. Should any previous stipulations in conflict with these Measures, these Measures shall prevail without exception.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.