38 Finance, Taxation, Customs: Organizational Structure

MINISTRY OF FINANCE

STATE ADMINISTRATION OF TAXATION

TAX ADMINISTRATION AT/BELOW PROVINCIAL LEVEL

GENERAL ADMINISTRATION OF CUSTOMS

TARIFF AND CLASSIFICATION COMMITTEE

TAX ADMINISTRATION: DIVISION OF AUTHORITY

REVENUE-SHARING SYSTEM

At present, tax administration tasks are jointly shouldered by the departments of finance, taxation and Customs.

This chapter discusses their organizational structure, and how tax administration is divided between them.

MINISTRY OF FINANCE

Overview

The Ministry of Finance is the macro-regulatory and supervisory arm of the State Council. It is in charge of financial revenue and expenditure, fiscal policy, and fundamental work related to State-owned capital.

The Minister of Finance is appointed by the President of the State; Vice Ministers, by the State Council.

The Ministry has many tax-related functions:

• Drafting and implementing development strategies, principles, and policies, as well as medium- and long-term plans, reform programs, and other relevant policies in the field of taxation.
• Putting forward proposals for the implementation of macro-regulatory policies and for the harmonization of social and financial resources through fiscal policies.
• Proposing tax legislation plans.
• Examining drafts of tax laws and tax regulations together with the State Administration of Taxation (SAT), and reporting on these drafts together with the SAT.
• Formulating financial revenue plans that help meet State budgetary needs.
• Putting forward proposals for the adoption or abolition of taxes, for adjustments to taxable items and tax rates, and for tax reductions/exemptions and special provisional tax reductions/exemptions that significantly affect central finance.
• Participating in tax treaty negotiations and international Customs negotiations. Concluding drafts of tax treaties and agreements. Formulating models for international tax treaties and agreements.
• Undertaking the daily work of the Tariff and Classification Committee of the State Council.
• Monitoring the implementation of fiscal principles, policies, laws and regulations.

Tax Policy Department

The Tax Policy Department of the Ministry of Finance is in charge of taxation.

Its main duties are listed below:

• Studying policies on domestic and international taxation.
• Putting forward proposals for reforms of the tax system, for the adoption or abolition of taxes, for adjustments to taxable items and tax rates, for tax reductions/exemptions, and for refunds of export tax.
• Participating in foreign tax negotiations and Customs negotiations. Participating in the initial conclusion of relevant treaties and agreements. Drafting models for international tax treaties and agreements.
• Studying development strategies for State taxation.
• Studying the division of tax authority/functions between the Central Government and the local governments.
• Drafting reform plans for the tax administrative system.

Customs Department

The Customs Department of the Ministry of Finance is in charge of Customs matters.

Its main duties are listed below:

• Studying policies on Customs duties and import taxes.
• Drafting plans for Customs duty negotiations.
• Participating in relevant Customs duty negotiations.
• Studying and putting forward proposals for the levy of special Customs duties/tariffs.
• Undertaking the daily work of the Tariff and Classification Committee of the State Council.

STATE ADMINISTRATION OF TAXATION

Overview

The SAT is the highest tax authority in China. A ministry-level organ that operates directly under the State Council, it is in charge of State revenue work.

The Commissioner and the four Deputy Commissioners of the SAT are appointed by the State Council. Other senior SAT executives include the Chief Economist and the Chief Accountant.

The SAT's mandate covers mainly the following areas:

• Drafting relevant tax laws and regulations, and detailed rules for their implementation. Putting forward suggestions on tax policy, submitting them to the State Council, and formulating the implementation procedures together with the Ministry of Finance.
• Participating in studying macro-economic policies and the division of tax authority/functions between the Central and local governments. Studying the overall level of tax incidence. Proceeding with suggestions on how to regulate and control the macro-economy by means of taxation. Formulating rules and procedures for taxation work, and monitoring their implementation. Supervising local tax administration and collection.
• Organizing and carrying out reforms of the tax administrative system. Formulating tax administrative procedures. Monitoring the implementation of tax laws, regulations and policies.
• Organizing and executing the collection and administration of Central taxes, shared taxes, Agriculture Tax and contributions to funds as designated by the State. Preparing revenue plans. Providing interpretations when any administrative or general tax policy disputes arise during the implementation of tax laws. Handling tax exemption/reduction matters.
• Promoting international exchange and cooperation in the field of taxation. Participating in international tax conventions. Initialing and executing relevant treaties and agreements.
• Handling the collection and refund of VAT and/or Consumption Tax on importation and exportation.
• Managing personnel, salaries, size, and expenditure for all SAT offices across the country. Overseeing the directors and deputy directors, and staff at similar levels, of SAT offices at the provincial level. Providing feedback on the appointment or removal of directors at provincial local tax bureaus.
• Overseeing education, training, and ideological education for tax staff in China.
• Organizing tax propaganda activities and tax theoretical research. Regulating registered tax agents, and standardizing tax agency services.

Main Departments

There are 13 functional departments within the Headquarters of the SAT, each of which consists of several divisions/offices/centers.

General Office

It oversees the following divisions/offices/centers:

• Division of Commissioners' Secretaries.
• Documentary Office.
• Secretariat Division.
• Supervisory Division.
• Comprehensive Research Division.
• News Division.
• Administrative Information Division.
• Financial Division.
• Printing Center.

Policy and Legislation Department

It oversees the following divisions/offices/centers:

• Division of Comprehensive Affairs.
• Tax Reform Division.
• WTO Office.
• Legislative Division.
• Appeal Division.
• Execution Monitor Division.

Turnover Tax Department

It is in charge of the administration of the following taxes:

• Value-Added Tax (VAT).
• Consumption Tax.
• Business Tax.
• Vehicle Acquisition Tax.
• Fuel Tax.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• VAT Division.
• Consumption Tax Division.
• Business Tax Division.
• VAT Audit and Assessment Division.

Income Tax Department

It is in charge of the administration of the following taxes:

• Enterprise Income Tax.
• Individual Income Tax.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• System Division.
• Enterprise Income Tax Divisions I and II.
• Individual Income Tax Division.

Local Tax Department

It is in charge of the administration of the following taxes:

• Resource Tax.
• City and Township Land Use Tax.
• City Maintenance and Construction Tax.
• Fixed Assets Investment Orientation Regulation Tax.
• Land Appreciation Tax.
• House Property Tax.
• Inheritance Tax.
• Vehicle and Vessel Usage Tax.
• Stamp Tax.
• Securities Exchange Tax.
• Slaughter Tax.
• Banquet Tax.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Local Tax Divisions I, II, and III.

Agriculture Tax Bureau

It is in charge of the administration of the following taxes:

• Agriculture Tax.
• Animal Husbandry Tax.
• Deed Tax.
• Farmland Occupation Tax.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Agriculture Tax Divisions I and II.

International Taxation Department

The department, is in charge of the following areas:

• Income Tax on the Enterprises with Foreign Investment and Foreign Enterprises (or Foreign Enterprise Income Tax).
• Urban Real Estate Tax.
• Vehicle and Vessel Use License Plate Tax.
• Other matters relating to foreign taxation.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Tax Policy Division.
• Anti-Tax Avoidance Division.
• International Tax Treaty Division.
• Tax Administration Division.
• International Taxation Cooperation Division.
• Foreign Affairs Division.
• International Tax Information Division.
• Translation Division.

Import and Export Tax Department

It is in charge of the administration of the following taxes:

• VAT on importation and exportation.
• Consumption Tax on importation and exportation.

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Import Tax Division.
• Export Tax Division.

Administration and Collection Department

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• System Division.
• Invoice Management Division.
• Information Management Division.
• Open Market Tax Division.
• Tax Service Division.

Tax Investigation Department

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Procedure Division.
• System Work Division.
• Investigation Divisions I, II, and III.
• Assistant Investigation Division.
• Case Disclosure Center.

Financial Management Department

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Asset Management Division.
• Budget Management Division.
• Expenditure Management Division.
• Audit Division.

Planning and Statistical Department

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Planning Division.
• Statistical Division.
• Macro-Analysis Division.
• Accounting Division.

Personnel Department

It oversees the following divisions/offices/centers:

• Comprehensive Division.
• Personnel Division for Headquarters.
• Personnel Division for Local Offices.
• Recruit Division.
• Grassroots Work Division.
• Wage and Welfare Division.
• Staff Monitor Division.

Non-Administrative Organs

In addition, some non-administrative institutions come directly under the Headquarters of the SAT:

• Education Center.
• Logistical Service Center.
• Information Center.
• Large Value Procurement Center.
• Registered Tax Agent Management Center.
• Tax Science Research Institute.
• China Taxation Magazine, China Taxation Newspaper, China Taxation Press.
• Yangzhou Taxation Institute.

TAX ADMINISTRATION AT/BELOW PROVINCIAL LEVEL

Because of the requirements of the revenue-sharing system, discussed later in the chapter, tax organs at or below the provincial level include both the offices of the SAT and local tax bureaus.

The SAT has vertical leadership over the offices of the SAT with respect to organization, size, personnel, and budgets. It assists provincial governments through a form of dual leadership over the local tax bureaus.

SAT Organs

All of the following organs make up the offices of the SAT:

• Offices of the SAT in provinces/autonomous regions/municipalities directly under the State Council.
• Offices of the SAT at the district and prefecture levels.
• Offices of the SAT at the county, city, and Banner levels.
• Collection branches/stations of the SAT.

The collection branches/stations are the resident organizations of the county offices of the SAT. Collection branches are normally established based on administrative jurisdiction, economic region or sector; collection stations, on economic region or administrative jurisdiction.

Provincial-Level Offices

The offices of the SAT at the provincial level are department-level administrative organizations that report directly to the headquarters of the SAT.

The directors and deputy directors are appointed by the headquarters of the SAT.

Duties

The provincial-level offices are the functional organs in charge of State revenue work within their own jurisdictions. They are also responsible for carrying out the relevant tax laws, regulations, and rules of the State. They fulfill these responsibilities by working out concrete implementation measures after considering local conditions and practical necessities.

Divisions

A provincial-level office generally oversees the following divisions:

• General Office.
• Tax Policy and Legislation Division.
• Turnover Tax Division.
• Income Tax Division.
• Collection and Administration Division.
• Financial Division.
• Planning and Statistics Division.
• Personnel Division.
• Tour Inspection Office.
• Education Division.
• Supervisory Division.

Branches

A provincial-level office directly oversees the following branches:

• Tax Investigation Bureau.
• Import and Export Tax Administration Branch (some offices might have a division rather than a branch).
• Foreign Investment Tax Branch (some offices might have a division rather than a branch).

Non-Government Organs

A provincial-level office oversees the following institutions:

• Information Center.
• Corporate Support Center.
• Tax Science and Research Institute.

Local Tax Bureaus

Local tax bureaus comprise all of the following organs:

• Local tax bureaus of People's Government at the provincial level.
• Local tax bureaus of People's Government at the municipal level.
• Local tax bureaus of People's Government at the county level.
• Tax collection branches and collection stations.

Reporting Lines

To Higher-Level Bureaus

A local tax bureau at or below the provincial level is under the dual leadership of both the local People's Government at the same level and local tax bureaus at a higher level.

The vertical leadership of the higher-level bureaus takes precedence, i.e., everything related to the organization, staff management, size and expenditure budgets of local tax bureaus at the municipal and county levels, is subject to the vertical leadership of the provincial-level local tax bureaus of the corresponding provinces.

To the SAT

The leadership of the SAT over local tax bureaus at the provincial level is reflected in the following areas:

• Providing tax policy and business guidelines.
• Supervising the implementation by local authorities of State-unified tax rules and policies.
• Coordinating the exchange of experiences.

The directors of local tax bureaus at the provincial level are appointed or removed by local governments after consultation with the SAT.

Provincial-Level Bureaus

These bureaus are the functional departments of the People's Government at the provincial level in charge of the local taxation work within their own jurisdictions.

They are normally department-level administrative organs under the dual leadership of the local governments and the headquarters of the SAT, with the former having predominant control.

Divisions

A provincial-level bureau generally oversees the following divisions:

• General Office.
• Tax Policy and Legislation Division.
• Turnover Tax Division.
• Income Tax Division.
• Collection and Administration Division.
• Financial Division.
• Planning and Statistics Division.
• Personnel Division.
• Supervisory Division.

Branches

A provincial-level bureau directly oversees the following branches:

• Tax Investigation Bureau.
• Foreign Investment Tax Branch (some bureaus might have a division rather than a branch).

Non-Government Organs

A provincial-level bureau oversees the following institutions:

• Information Center.
• Corporate Support Center.
• Tax Science and Research Institute.

Department/Staff Strength

As of the beginning of 2005, there were 61 tax departments at the provincial level, 30 municipal tax departments at the vice-provincial level, 1,027 tax departments at the local level (e.g., city, prefecture level), 5,288 tax departments at the county level, and 30,915 tax stations/branches.

There are 844,000 staff members in China, of which 457,000 (54.1%) are national tax staff and 388,000 (45.8%) are local tax staff.

GENERAL ADMINISTRATION OF CUSTOMS

Overview

The General Administration of Customs reports directly to the State Council. It is the administrative arm in charge of Customs matters in China.

The Commissioner and Deputy Commissioners are appointed by the State Council. Some of the department's many responsibilities are listed below:

• Studying and drafting the Regulations on Customs Administration, and detailed rules for their implementation.
• Organizing and implementing import/export duties/tariffs.
• Collecting and administering other taxes and fees.
• Executing anti-dumping and anti-subsidy measures.

Organizational Structure

The organizational structure is set up in a manner designed to meet the needs of foreign economic, trade, scientific/technological, cultural exchange, and tourism development. Therefore, it is not restricted by administrative jurisdictions.

In general, Customs is set up at open ports, and places that experience frequent entry/exit of goods/travelers.

Department/Staff Strength

Customs adopts vertical leadership over the Guangdong Sub-Administration, 41 direct offices (including 36 directorate-level offices and 5 deputy directorate-level offices) and more than 300 subsidiary offices (including 10 deputy directorate-level offices), each of which independently discharges its responsibilities by law.

Nationwide, staff members total about 45,000.

Collection and Administration Department

The Customs Duty Collection and Administration Department is the functional department in charge of collecting and administering Customs duties/tariffs.

Its main responsibilities are listed below:

• Studying and proposing rules and procedures for the collection and administration of Customs duties/tariffs and import duties.
• Administering the verification of dutiable prices for imported goods.
• Organizing and implementing reductions/exemptions for Customs duties/tariffs and import duties.
• Studying collection and administration rules governing Customs duties/tariffs for special regions, special trade and special goods, and organizing the implementation of these rules.
• Organizing the implementation of anti-dumping and anti-subsidy measures.
• Studying Customs monitoring rules for the processing trade, bonded warehouses and bonded factories, and organizing the implementation of these rules.
• Studying monitoring rules for bonded zones, and organizing the implementation of these rules.

TARIFF AND CLASSIFICATION COMMITTEE

Overview

The Tariff and Classification Committee of the State Council is a discourse and coordination body that reports directly to the State Council.

Its main duties are listed below:

• Examining plans to adjust tariff rates, annual provisional tariff rates, tariff quota rates and special duty rates, and plans to revise tariff classifications.
• Approving relevant State preferential tariff rates.
• Discussing important Customs policies and foreign Customs negotiation plans, and reporting on such policies or plans to the State Council.
• Proposing principles and policies related to the formulation or revision of the Regulations of the People's Republic of China on Import and Export Customs Duty, and examining revision drafts.

Committee Appointments

Appointments are generally made in the following manner:

The committee chairman is usually a member of the State Council.

The deputy committee chairmen and committee members are usually drawn from the ranks of the officials heading the following State organs:

• The Ministry of Finance.
• The Ministry of Foreign Trade and Economic Cooperation.
• The State Commission for Development and Planning.
• The State Commission for Economy and Trade.
• The State General Administration of Customs.
• The SAT.
• Relevant ministries of the State Council.

The committee's office is set up in the Ministry of Finance, and the office chief is usually the head of the Tax and Tariff Department of the Ministry of Finance.

TAX ADMINISTRATION: DIVISION OF AUTHORITY

This section discusses how the collection and administration of taxes is divided between the offices of the SAT, the local tax bureaus, the financial departments of local governments, and Customs.

Under certain circumstances, the offices of the SAT and the local tax bureaus may entrust each other for the collection of some taxes, for the following purposes:

• To strengthen tax collection and administration.
• To lower administration costs.
• To avoid work overlaps.
• To simplify tax payment procedures.
• To provide convenience to taxpayers.

As of the beginning of 2005, 14.084 million taxpayers had registered with the offices of the SAT, and 17.975 million, with local tax bureaus.

Offices of the SAT

The following taxes are collected and administered by the offices of the SAT:

• VAT and Consumption Tax (at the importation stage, these taxes are collected by Customs).
• Business Tax, Income Tax, and City Maintenance and Construction Tax paid on a consolidated basis by the railway department, the headquarters of various banks, and the headquarters of various insurance companies.
• Income Tax paid by central enterprises.
• Income Tax paid by joint-operation enterprises and shareholding enterprises with investments from both the central and local enterprises and/or non-profit institutions.
• Income Tax paid by local banks and non-bank financial institutions.
• Income Tax and Resource Tax paid by offshore oil enterprises.
• Income Tax paid by enterprises and institutions registered after January 1, 2002.
• Income Tax paid by enterprises with foreign investment and foreign enterprises.
• Individual Income Tax on interest income from personal savings deposits.
• Vehicle Acquisition Tax.
• Stamp Tax levied on securities transactions.

Local Tax Bureaus

The following taxes are collected and administered by the local tax bureaus:

• Business Tax.
• Enterprise Income Tax.
• Individual Income Tax.
• Resource Tax.
• City Maintenance and Construction Tax.
• Stamp Tax (excluding the portion collected by the offices of the SAT).
• City and Township Land Use Tax.
• House Property Tax.
• Urban Real Estate Tax.
• Fixed Assets Investment Orientation Tax (levies have been suspended).
• Land Appreciation Tax.
• Vehicle and Vessel Usage Tax.
• Vehicle and Vessel Usage Plate Tax.
• Slaughter Tax (levies have ceased).
• Banquet Tax (levies have ceased).

Financial Departments of Local Governments

In most parts of China, the following taxes are collected and administered by the financial departments of the local governments:

• Agriculture Tax and its local surtax.
• Animal Husbandry Tax and its local surtax.
• Deed Tax.
• Farmland Occupation Tax.

In some regions, however, they are collected and administered by the local tax bureaus. Animal Husbandry Tax is no longer levied. Agriculture Tax is no longer levied in most areas.

Customs

The following taxes are collected and administered by Customs:

• Customs duties/tariffs.
• Vessel Tonnage Tax.

Customs is responsible for collecting VAT and Consumption Tax on imports, on behalf of the tax administration.

REVENUE-SHARING SYSTEM

Under State Council stipulations governing the adoption of the revenue-sharing system, tax revenue in China is divided into central revenue, local revenue, and revenue shared between the Central Government and the local governments.

Central Revenue

The following taxes provide regular sources of central revenue:

• Consumption Tax.
• Vehicle Acquisition Tax.
• Customs duties/tariffs.
• Vessel Tonnage Tax.
• VAT collected by Customs on behalf of the tax administration.

Local Revenue

The following taxes provide local revenue:

• City and Township Land Use Tax.
• House Property Tax.
• Urban Real Estate Tax.
• Farm Land Occupation Tax.
• Fixed Assets Investment Regulation Orientation Tax (suspended).
• Land Appreciation Tax.
• Vehicle and Vessel Usage Tax.
• Vehicle and Vessel Usage Plate Tax.
• Deed Tax.
• Slaughter Tax (no longer levied).
• Banquet Tax (no longer levied).
• Agriculture Tax (no longer levied in most areas).
• Animal Husbandry Tax (no longer levied).

Shared Revenue

Revenue shared between the Central and local governments comes from the taxes discussed below.

Domestic VAT

Revenue collected is shared 75:25 between the Central Government and the local governments (on base year).

VAT collected by Customs on behalf of the tax administration is excluded.

Business Tax

Revenue collected from the following entities is assigned to the Central Government:

• The railway department.
• The headquarters of various banks.
• The headquarters of various insurance companies.

All other revenue collected from this tax belongs to the local governments.

Enterprise Income Tax

Revenue collected from the following sectors and enterprises is assigned to the Central Government:

• Railway transportation and State postal services.
• The Industrial and Commercial Bank of China.
• The Agricultural Bank of China.
• The Bank of China.
• The Construction Bank of China.
• The State Development Bank.
• The Agricultural Development Bank of China.
• The Import & Export Bank of China.
• China Oil and Natural Gas Company Limited.
• China Oil Chemical Company Limited.
• Offshore oil and natural gas enterprises.

All other revenue collected from this tax is shared 60:40 between the Central Government and by the local governments.

Foreign Enterprise Income Tax

Revenue collected from the following enterprises is assigned to the Central Government:

• Offshore oil and natural gas enterprises.

All other revenue collected from this tax is shared 60:40 between the Central Government and by the local governments.

Individual Income Tax

Revenue collected is shared 60:40 between the Central Government and the local governments.

Resource Tax

Revenue collected from the following enterprises is assigned to the Central Government:

• Offshore oil enterprises.

All other revenue collected from this tax belongs to the local governments. Resource Tax is not being levied at the moment.

City Maintenance and Construction Tax

Revenue collected from tax paid on a consolidated basis by the following entities is assigned to the Central Government:

• The railway department.
• The headquarters of various banks.
• The headquarters of various insurance companies.

All other revenue collected from this tax belongs to the local governments.

Stamp Tax

Revenue collected from securities transactions is shared 97:3 between the Central Government and the local governments.

All other tax revenue collected belongs to the local governments.