(February 19, 1997)
In order to bring the role of taxation into play in adjustment and control, further smooth the distribution relationships between the State and the financial and insurance enterprises, promote equal competition among financial and insurance enterprises and guarantee the State fiscal revenue, the State Council has decided to adjust the taxation policy for the financial and insurance industries as of January 1, 1997. The relevant issues are hereby notified as follows:
I. The income tax rate for financial and insurance enterprises shall be standardized. With respect to financial and insurance enterprises which currently have the income tax rate of 55% levied, their income tax rate shall be uniformly reduced to 33%. The income tax budget level of the financial and insurance enterprises shall not change.
II. The provisions of the business tax rate for financial and insurance industries in the Interim Regulations of the People's Republic of China on Business Tax shall be revised, and the current business tax rate of 5% for financial and insurance industries shall be raised to 8%. After the business tax rate is raised, with the exception that the business tax paid by the head offices of all banks and insurance companies shall in its entirety remain Central fiscal revenue, in regard to the business tax paid by all other financial and insurance enterprises, the portion levied at the increased rate of 3% shall go to the Central fiscal revenue.
III. For financial enterprises with foreign investment and foreign financial enterprises set up in the special economic zones (including the Shanghai Pudong New Development Zone and Suzhou Industrial Park, similarly hereinafter), all business income originating from inside the special economic zones shall continue to enjoy the preferential policy of business tax exemption for 5 years as of the date of registration and have tax levied at the rate of 8% upon expiration of the exemption period; for the portion of business income originating from outside special economic zones, the preferential policy of tax exemption in special economic zones shall no longer be implemented, and relevant taxation policy for financial enterprises set up outside special economic zones shall be implemented.
IV. For financial and insurance enterprises with foreign investment and foreign financial and insurance enterprises set up outside special economic zones until December 31, 1996, the business tax shall be levied at the reduced rate of 5% and shall remain local fiscal revenue until December 31, 1998; it shall be levied at the rate of 8% as of January 1, 1999. For financial and insurance enterprises with foreign investment and foreign financial and insurance enterprises newly set up outside special economic zones from January 1, 1997, the business tax rate of 8% shall be implemented without exception.
V. Once the business tax rate for financial and insurance industries is raised, State policy banks shall be levied at the reduced tax rate of 5%. The business tax paid by policy-banks shall still be refunded to policy banks as State capital fund investments. The refund policy shall cease to be implemented from the date when the capital fund of policy banks reaches the amount prescribed by the State Council.
VI. Once the business tax rate for financial and insurance industries is raised, the business tax on rural credit cooperatives shall be levied at the reduced rate of 5% until December 31, 1997 and remain local fiscal revenue; it shall revert to the rate of 8% as of January 1, 1998.
VII. Once the business tax rate for financial and insurance industries is raised, the urban maintenance and construction tax and educational surtax levied along with business tax shall continue to be calculated and levied at the original tax rate of 5%, and shall be exempt from the proportionate increased rate of 3%. Income from additional collections shall remain local fiscal revenue.
VIII. Once the business tax rate for financial and insurance industries is raised, the business tax on financial and insurance enterprises which the collection agencies subordinate to local tax bureaus are currently responsible for collecting shall switch to be jointly collected by the collection agencies subordinate to State tax bureaus and local tax bureaus. Within this tax, the collection agencies subordinate to local tax bureaus shall be responsible for collecting the portion calculated and levied at the original rate of 5%, and the collection agencies subordinate to local tax bureaus shall be responsible for collecting the portion calculated and levied at the original rate of 5%, and the collection agencies subordinate to State tax bureaus shall be responsible for collecting the portion calculated and levied at the increased rate of 3%. The collection of the business tax paid by head offices of all banks and insurance companies shall continue to be the responsibility of the collection agencies directly subordinate to the State Administration of Taxation. The collection of the urban maintenance and construction tax and educational surtax levied along with business tax shall be the responsibility of collection agencies subordinate t local tax bureaus.
Adjusting the taxation policy for financial and insurance industries is an important policy decision of the State Council; the people's governments of all localities must attach great importance to it and strengthen leadership; agencies of State tax bureaus at the various levels and local tax bureaus shall closely cooperate, effectively strengthen the administration of collection, prevent tax "evasion, fraud, leaks and loopholes"; all financial and insurance enterprises shall further raise their awareness of tax payment and timely and sufficiently declare and pay their taxes in accordance with the State provisions to ensure the implementation of the State taxation policy for financial and insurance enterprises.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
