Consumption Tax is a tax on the production, processing or importation of certain specific consumable goods in the People’s Republic of China. The critical regulations in relation to Consumption Tax are:

1. The Interim Regulation of the People’s Republic of China on Consumption Tax (2008).
2. The Detailed Rules of the Implementation of the Interim Regulation of the People’s Republic of China on Consumption Tax (2008).

Liability for Consumption Tax

There are two critical elements that will establish liability for Consumption Tax. Firstly, the goods must be prescribed “consumption goods”. Second, the goods must have been produced, processed on commission or imported into the PRC. Accordingly, it is important to understand the operation of these three elements to determine whether there is liability for consumption tax, and the timing of such liability.

Consumption Goods

The consumption goods are outlined in the Annexure to the Interim Regulation and they are as follows:

Production, Process and Importation

Production of consumable goods is relatively uncomplicated term and it simply means when such goods are produced. Liability for Consumption Tax in respect produced goods will arise when the goods are sold (Article 4 of the Interim Regulation).

Goods “processed on commission” refers to goods in which the principal provides raw materials and major materials and for which a contractor only collects the processing charge and supplies some auxiliary materials for processing. Liability for Consumption Tax arises when the goods are taken back by the principal.

Liability of Consumption Tax in respect of the importation of taxable consumption goods arises when the customs declaration formalities are handled.