Introduction to Chinese Fiscal System

Table of Contents

1. Frontmatter

2. Chapter 1. Introduction to Taxation

   Lorenzo Riccardi

   Abstract

   Taxation is the process by which the sovereign, through its law-making body, generates revenue in order to promote welfare and protection of its citizenry. This is the primary purpose of taxation; other purposes of taxation include the ability to equitably contribute to the wealth of the nation, to protect new industries, and to protect local producers.

3. Chapter 2. Legislative Framework

   Lorenzo Riccardi

   Abstract

   Until 1912 China was governed by the Emperor, and in particular the Qing dynasty. The period of wars protracted for all the second part of the 19th century, when China, constantly defeated, was forced to accept several unfair and unequal treaties. Starting with the Treaty of Nanjing, signed at the end of the Opium War (1839–1842), and ending with the Sino-Japanese war, these treaties contributed to weaken the already rickety Emperor’s government, leading to the abdication of the Qing emperor in 1912 and ending over 2000 years of imperial rule.

4. Chapter 3. Taxpayers

   Lorenzo Riccardi

   Abstract

   The definition the CIT Law defines enterprises as including both business enterprises and other types of organizations receiving income (Article 1 of CIT Law).

5. Chapter 4. Direct Taxation in China

   Lorenzo Riccardi

   Abstract

   China’s individual income tax system includes a structure of income categories and taxpayer statuses. Whether an individual must pay income tax in China depends on where the income-generating activity was performed, whether the payer is a foreign or domestic entity, and on the basis of the residency status of the taxpayer. Taxpaying parties include residents of China and the Hong Kong Special Administrative Region, as well as residents of Macao and Taiwan, Chinese citizens living abroad, and foreign individuals living in China. The amount of tax the individual must pay depends on the type(s) of income earned, as each classification of income is subject to different tax rates and deductibles.

6. Chapter 5. Indirect Taxation

   Lorenzo Riccardi

   Abstract

   Turnover Taxes are a category of tax that includes three different types of taxes: (1) Value-Added Tax (VAT); (2) Business Tax (BT); (3) Consumption Tax (CT).

7. Chapter 6. Free Trade Zones

   Lorenzo Riccardi

   Abstract

   An increasing number of investors is interested in the Free Trade Zones (FTZ), which are the Special Economic Zones (SEZs) that have developed globally within recent years. However, in 1980 China led the SEZ movement by creating four free trade zones inside its territory. The first four SEZs were all based in south-eastern coastal China and were established in the cities of Shenzhen, Zhuhai, Shantou, and Xiamen. The expression “Special Economic Zone”, here after seen as SEZ, refers to a geographic region within a nation where there are fewer custom restrictions than in the rest of the country. SEZs are created to facilitate economic growth through the encouragement of direct foreign trade. FTZs and EPZs (Export Processing Zones) are more common and more easily-approved in China compared with other areas. During the 1990s, Special Economic Zones became significant especially in manufacturing sectors, encouraging investors to establish companies in these development zones thanks to incentives such as limited Corporate Income Tax (CIT fixed at 15%), triggering the economic growth of China to the WTO (2001).

8. Chapter 7. Main Legislations and Regulations

   Lorenzo Riccardi

   Abstract

   This Law is formulated with a view to strengthening tax administration, standardizing the activities of tax collection and payment, safeguarding the tax revenue of the country, protecting the legitimate rights and interests of taxpayers and promoting economic and social progress.

9. Backmatter