The consumption tax is imposed on the entity and individual engaged in producing, consigned processing, or importing taxable consumer goods within China. The taxation scope covers 14 tax items such as tobacco, alcoholic drinks and alcohol, cosmetics, jewellery and precious stones. The consumption tax payable is assessed respectively under the rate on value method or the amount on volume method on the basis of the volume of sales or the quantity of sales in respect of the taxable consumer goods, in accordance with the tax items specified by the tax laws. The prescribed time limit for paying consumption tax is the same as that for VAT.
Once China's value-added tax (VAT) reform is fully implemented, consumption tax will become one of only two major indirect taxes in the country.
Consumption tax is imposed on all the individuals and organisations, which manufacture and import taxable products, process taxable products under consignment, or sell taxable products. In 2015, China's consumption tax revenue amounted to RMB 890.7 billion.
The current system of consumption tax in China was implemented in 1994 via the Interim Regulations on Consumption Tax, passed by the State Council in 1993, and further amended in 2008. The Implementation Guidelines were promulgated in 2008 by the MOF and SAT. Consumption tax forms part of the base upon which VAT is levied. In this article, we provide a brief introduction to China's consumption tax system and illustrate the tax calculation process with two examples.
Consumption tax is levied on the below five categories of products:
A company processing taxable goods for others is liable to withhold and pay consumption tax based on the value of the raw materials used. Consumption tax is filed and paid monthly.
Tax rates vary considerably with the type of product in question. Consumption tax is calculated ad valorem or based on quantity. The formulae are:
Consumption tax payable = Taxable sales amount x Tax rate
A car manufacturer sold RMB 6 million worth of 1.8 litre passenger cars in a month.
The applicable consumption tax rate is five percent.
Consumption tax payable = RMB 6 million x 5% = RMB 300,000
Consumption tax payable = Taxable sales quantity x Tax amount per unit
A gasoline company sold 50,000 litres of unleaded gasoline in a month.
The applicable consumption tax rate is RMB 1.0/litre.
Consumption tax payable = 50,000 litres x RMB 1.0/litre = RMB 50,000
For export goods, no consumption tax is payable. If the exported goods were previously imported into China, the consumption tax paid upon import is refundable. For goods that are VAT exempt,
Consumption tax is also exempt; however, previously paid consumption tax is neither refundable nor creditable from consumption tax payable for domestically sold goods.
On November 25, 2014, the MOF and the SAT jointly released the "Announcement on Adjusting Consumption Tax Policies (Cai Shui [2014] No.93)," which took effect on December 1, 2014. According to the Announcement, consumption tax has been removed for the below items:
Meanwhile, consumption tax of three and 10 percent will continue to be levied on motorcycles with a cylinder capacity of 250 ml and 250+ ml, respectively. In January 2015, the Chinese government raised the consumption tax on petroleum product again (the third time in three months), in an effort to control air pollution and support the renewable energy sector.
For that purpose, specified goods are listed in the table "Tax items and tax rates" below.
| Taxable items | Tax rates (tax amount) | Comments |
|---|---|---|
| 1. Tobacco (1) Grade A Cigarettes (2) Grade B Cigarettes (3) Grade C Cigarettes (4) Cigars (5) Cut tobacco | 50% 40% 25% 25% 30% | |
| 2. Alcoholic drinks and alcohol (1) white spirits made from cereal (2) white spirits made from potatoes (3) yellow spirits (4) beer (5) other alcoholic drinks (6) alcohol | 25% 15% 240 yuan per tonne 220 yuan per tonne 10% 5% | |
| 3. Cosmetics | 30% | |
| 4. Skin-care and hair-care products | 8% | Perfumed soap currently taxed at 5% |
| 5. Precious jewellery, pearls, precious jade and stones (1) Gold and silver jewellery (2) Other jewellery, pearls, precious jade and stones | 5% 10% | |
| 6. Firecrackers and Fireworks | 15% | |
| 7. Gasoline (1) Unleaded (2) Leaded | .2 yuan per litre 0.28 yuan per litre | |
| 8. Diesel | 0.1 yuan per litre | |
| 9. Motor Vehicle Tyres | 10% | |
| 10. Motor-cycles | 10% | |
| 11. Motor cars | 3%, 5%, 8% | Rate applied on the basis of the type and cylinder capacity of the car |