Laws of the People's Republic of China

State Administration of Taxation

Notice of the State Administration of Taxation on Strengthening Tax Revenue Administration in Coal Industry

Guo Shui Fa [2005] No 153

To bureaus of state taxes and bureaus of local taxes of all provinces, autonomous regions, municipalities directly under the Central Government, cities specifically designated in the state plan, and Yangzhou Taxation Training College:

Since last year, the State Administration of Taxation has discovered the pervasive nonstandard tax management and inefficient tax revenue in coal industry by analyzing and studying special tax examination in the coal industry of some regions. In order to further strengthen the governance of tax by law and ascertain the responsibility of tax revenue administration, the problems on strengthening tax administration in coal industry is hereby given as follows:

1.

To strengthen tax registration administration and solidify routine supervision. In accordance with the principle of common registration and local administration, any unit or individual undertaking coal production or sale shall perform tax registration in the bureaus of state taxes, bureau of local taxes (or both) hereof. For the unit or individual with complete procedure, tax registration shall be handled. In case of the unit or individual with incomplete procedure yet having undertaken coal production, temporary tax registration shall be handled. Tax authorities shall initiatively supervise and put in order the tax administration of coal enterprises and solidify routine supervision upon branches of enterprises and small-sized coal enterprises.

Supervision upon the confirmation of common taxpayer shall be strengthened. Any one up to the standard of common taxpayer shall apply for the confirmation of common VAT taxpayer and establish and perfect account book. Where those up to the standard of common taxpayer fail to apply for confirmation procedure, the tax payable shall be accounted by VAT rate of sale amount in accordance with the provisions of Article 33 in "Rules for the Implementation of the Interim Measures on Value-Added Tax of the People's Republic China", and neither VAT output may be credit nor special invoice may be issued. Tax authorities shall analyze the performance of small- sized taxpayers and make due publicity upon those enterprises in line with the prescribed conditions, conduct the examination and confirmation of common taxpayer and subsequently equip them with tax control anti-falsification facilities.

2.

To establish coordination mechanism so as to advance the share of information. All levels of tax authorities shall actively win the support of local governments and establish coordination mechanism with such authorities as bureaus of state taxes, bureau of local taxes, industry and commerce, safety production, price supervision by means of joint meeting and joint dispatch with related departments; they shall acquire such information as handling of business license by industry and commerce authorities, safety manufacturing license by safety production authorities, mining license by coal production and supervision authorities, resource depletion charges by coal supervision authorities, and thereby examine and put in order tax registration of coal enterprises and establish the record of related enterprises to avoid the negligence of tax collection and supervision.

3.

To strictly implement tax administrator system and ascertain administrator's responsibility. All levels of tax authorities shall strictly implement "Tax Administrator System (For Trial Implementation)"(Guo Shui Fa[2005] No. 40), strengthen supervision and service hereon and solidify the related routine inspection. The basic tax authorities shall gravely check the performance of coal industry in their jurisdiction areas, tax administrators shall comprehend the characteristics of coal enterprises and the performance of their production, sale, tax control facilities, issuing of invoice, as well as duly discover and correct the deeds of tax violation.

4.

To strengthen taxpaying assessment and tax revenue supervision. "Taxpaying Assessment Measures (For Trial Implementation)" (Guo Shui Fa [2005] No 43) shall be implemented to enhance the management upon coal industry especially small and medium-sized enterprises. All regions shall undertake thorough investigation to find the inherent law of tax administration in coal industry and to subsequently confirm the main and supplementary indicators, carve up various administration modes reasonably in accordance with the supervision of tax-control facilities and such performances as production, sale and stockpile of enterprises and the fluctuation of coal price, and to solidify the assessment upon the taxpayers through combination of human and machine. The assessment mode includes: electricity cost mode, payroll cost mode, raw material mode, mineral resources mode, production-for-sale mode, import-for-sale mode. These modes are applied to discover unusual circumstances for due correction in accordance with the comparison between such indicators as average industrial current drain, payroll cost with the practical indicator of specific industry. In the process of taxpaying assessment, various assessment modes may be employed simultaneously to promote the accuracy of taxpaying assessment, intensify routine management and stop up loopholes.

(1)

Electric cost mode. The objective conditions of every coal mine determining the rough stability of its electricity consumption in unit production is deemed an assessment criterion to calculate its yield capacity by means of electricity consumption in the process of production, and thereby the coal sale amount and its tax payable.

The formula is

Product yield in the period of assessment=value of electricity consumption in the period of assessment¡Â value of electricity consumption of unit ton product

Product of sale in the period of assessment= product yield in the period of assessment+ product stockpile in the initial assessment period- product stockpile in the final assessment period

Calculated sale income in the period of assessment=product sale in the period of assessment¡Á unit price for product sale in the period of assessment

The electricity consumption in the period of assessment shall deduct that part for water pumping and draught

(2)

Payroll cost mode. The coal enterprises mostly adopt fixed wage system for the managerial staffs, wage system based on beneficial results for production personnel, with the wage obtained directly proportional to the yield of raw coal. The monthly paid wages in the coal mine may be withdrawn from the wage roster of the enterprise or be acquainted from coal exploitation contract team. The formula is

Raw coal yield in the month of assessment=monthly wages to be withdrawn for coal miners in the month of assessment¡Â wage for coal miner via unit ton coal

Raw coal sale in the month of assessment=raw coal yield in the month of assessment+ raw coal stockpile at the beginning of the assessment month- raw coal stockpile at the end of the assessment month

Calculated raw coal income in the month of assessment=raw coal sale in the month of assessment¡Á unit sale price in the month of assessment

Coal miner wage to be withdrawn for coal miners in the month of assessment= total amount of wage to be withdrawn in the month of assessment- wage for the managerial personnel

(3)

Raw material cost mode. The number of pit timber invested in the process of raw coal production is directly proportional to that of tunnel, which is directly proportional to raw coal yield. The formula is

Raw coal yield in the month of assessment= the number of pit timber consumption in the month of assessment¡Â the number of pit timber for unit ton raw coal pit

Raw coal sale in the month of assessment=coal stockpile at the beginning of the month of assessment- coal stockpile at the end of the month of assessment

Estimated income of raw coal sale in the month¡Á of assessment= raw coal sale in the month of assessment¡Á unit sale price in the month of assessment

(4)

Mineral resource charges depletion mode. The mineral bureau has a technical survey plan for the amount of coal stockpile underground and for the coal structure, and thereby survey the actual exploitation plan and tunneling mapping every month and measure it out, and subsequently work out the yield and the sale amount of that enterprise by technical means and then the sale value by comparing it with data of stockpile plan. The mineral bureau calculates the taxable mineral resource charges based on the sale amount, which is so accurate technically that can be deemed as an important indicator for taxpaying. The formula is:

Calculated sale income of that period= mineral resource depletion charge of that period¡Â mineral resource depletion charge ratio

Paid mineral resource depletion charge of that period=(yield of that month calculated by mineral department+ stockpile at the beginning of that month- stockpile at the end of that month) ¡Áaverage sale price in that month¡Á mineral resource depletion charges

(5)

Production-against-sale mode. This mode may be employed by any coal enterprise equipped with tax control facilities to calculate the coal sale amount of that month provided that the calculated yield is settled. The formula is as follows:

Coal sale amount in the initial month=coal yield monitored by monitoring system of that month or calculated by some means- actual coal slack yield of that month- weight of other non-coal sundries- stockpile at the end of that month

Coal sale amount of the next two months=yield monitored by monitoring system of that month or calculated by some means +reduced amount of coal stockpile at the end of that month- actual coal slack yield of that month-weight of other non-coal sundries-increased coal stockpile amount at the end of that month

Coal enterprises shall examine and calculate the yield, sale amount, stockpile amount and sale amount of coal and coal slack respectively.

Value-added tax shall be imposed upon the sold coal slack in accordance with the lawful tax rate or charge rate.

(6)

Input-against- sale mode. Input acquired by a coal?Cinvolved enterprise with raw coal as raw materials for production in the process of raw coal purchase shall be deemed as the criteria for assessing the production and sale amount of small-sized coal mines so as to further verify the sale income of the enterprises hereof. It applies to the raw coal enterprise mainly engaged in local sale. The formula is:

Raw coal sale amount in the month of assessment=ton shown in the invoice of raw coal purchase by the coal-involved enterprise+ coal sale amount with the invoice issued by tax authorities+ raw coal purchase amount without invoice given by that enterprise

Calculated income in the month of assessment= sale amount of raw coal in the month of assessment¡Á unit sale price

5.

To standardize the administration of commissioned tax collection. Tax, where conditions permit in some regions, may be imposed upon coal enterprises by means of commissioned tax collection. The entrust and the entrusted shall sign the agreement of commissioned tax collection agreement to strengthen administration thereon, set strictly the scope of commission and the criteria of tax collection to ensure the collection obligations withhold in time. The coordination between bureaus of state taxes and local ones shall be strengthened so that the commissioned tax collection may be performed mutually provided that conditions permit. Corporate Income Tax and Individual Income Tax shall not be collected by commission in principle, unless otherwise it is of great necessity, if so, means of refund and collection shall be clarified.

6.

To standardize and verify collection administration. Where the coal enterprise in line with the provisions in Article 35 of Tax Collection Administration adopts the verification of collection administration, tax authorities may employ the modes and indicators listed herein as well as other effective measures to ascertain verification hereof. The scope of verification shall be strictly controlled. Where the coal enterprise employs fixed rate collection and fixed amount collection, the basic tax authorities and personnel in charge shall enhance routine administration and supervision and adjusts the fixed amount or fixed rate in accordance with the alteration of tax revenue and market quotation. For the newly established coal enterprise employing verification of collection administration, the term for its initial fixed amount or fixed rate shall be one month. Verification or tax collection on audit of account will be carried out on the basis of further collection upon its expiration.

7.

To intensify tax revenue administration by fully employing tax control facilities. All level of authorities shall make full use of technical means, in particular information one to extend tax control facilities and to intensify the amount measurement upon the coal enterprises and supervision upon tax revenue. Real-time electronic monitoring system, where conditions permit, may be installed in such sites as the coal exit, sale spot of bunker and conveyer belt in the mine etc., to scan the amount of production and sale shown in electronic platform scale automatically into main monitor for automatic calculation so as to determine coal daily sale amount and actualize yield monitoring, production-against- sale, sale-against- tax, tax revenue control.

8.

To strengthen administration upon invoice. In order to supervise whether all the invoices for sale income of enterprise have been issued, the following shall be fulfilled:

First, consumers are encouraged to report the deeds of failure to issue invoice; second, taxpaying assessment and daily examination shall be carried out upon the enterprises with sharply decreasing invoice; third, for the taxpayers to purchase new invoice by presenting the record of the used ones for examination, they shall fulfill it, compare the examined sum with that sale value declared in the same month or verified sum with that in the special invoice of tax control for anti-falsification so as to investigate and punish those that failed to declare it genuinely or to adjust the fixed tax amount.

State Administration of Taxation

September 26, 2005