29 May 2009
Consumption tax is tax payable on the sales value or volume of taxable consumer goods sold in China by units and individuals engaged in the production, commissioned processing or importation of any of the following 14 items of goods: cigarettes, liquor and alcohol, cosmetics, fine jewellery and precious stones, firecrackers and fireworks, processed oil, motor vehicle tyres, motorcycles, small motor cars, golf balls and clubs, high-end watches, yachts, disposable wooden chopsticks and wooden floor panels. It is levied on consumer goods on top of VAT.
Consumption tax is included in the transaction price and is only payable on the production, commissioned processing and importation of taxable consumer goods. Since consumption tax is included in the transaction price, it is not payable in the subsequent stages such as wholesaling and retailing. The tax is ultimately borne by consumers.
Payers of consumption tax are units and individuals engaged in the production, commissioned processing and importation of taxable consumer goods. Taxpayers producing taxable consumer goods should pay tax at the time when they sell the goods. For taxable consumer goods produced by taxpayers for own use or for sustainable production, no tax has to be paid; but if the goods are used for other purposes, tax has to be paid at the stage of transfer for use. For taxable consumer goods processed on a commission basis, unless the commissioned party is an individual, otherwise the commissioned party will collect the tax from the commissioning party when the goods are delivered and will pay tax on its behalf. For imported taxable consumer goods, tax will be paid at the time of import and customs declaration.
Method of Computation
Consumption tax is levied on an ad valorem, specific, or compound basis (i.e. according to a certain rate of the value of the goods plus a certain quantity of the volume of the goods). The formula for the computation of the tax payable is as follows:
For tax payable on a specific basis, the sales volume is used as the basis:
Tax payable = sales volume x unit tax amount
For tax payable on an ad valorem basis, the sales value is used as the basis:
Tax payable = sales value x tax rate
For tax payable on a compound basis:
Tax payable = sales volume x specific tax rate + sales value x proportional tax rate
Taxable Items and Tax Rates
Place for Paying Consumption Tax
For taxable consumer goods sold by taxpayers, unless otherwise stipulated in other regulations of the finance and tax authorities under the State Council, a tax return has to be filed and tax paid to the competent tax authorities where the taxpayer's operation is located or resident.
For taxable consumer goods under commissioned processing, unless the commissioned party is an individual, otherwise the commissioned party has to pay consumption tax to the competent tax authorities where the operation is located or resident.
For imported taxable consumer goods, tax returns should be filed and taxes paid to the customs office where the customs declaration is made.
Period for Payment of Consumption Tax
The period for payment of consumption tax may be one day, three days, five days, 10 days, 15 days, one month or one quarter, to be determined by the competent tax authorities on the basis of the amount of tax payable. Those who are not able to pay tax according to the fixed time schedule may pay tax on a transaction-by-transaction basis.
For taxpayers who pay tax on a monthly or quarterly basis, they should file tax returns and pay tax within 15 days from the end of the payment period. For taxpayers who pay tax every one day, three days, five days, 10 days or 15 days, they should pay tax in advance within five days from the end of the payment period, and should, within the first 15 days of the following month, file tax returns and settle any outstanding tax payments from the previous month.
Taxpayers importing taxable consumer goods should pay tax within 15 days after Customs has issued the Customs Import Consumption Tax Special Payment Notice.