Cai Shui [2006] No. 125

The public finance departments (bureaus), the bureaus of state taxes of each province, autonomous region, municipality directly under the Central Government, and city specifically designated in the state plan and the Bureau of Public Finance of Xinjiang Production and Construction Corps:

After the release of the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting and Perfecting Consumption Tax Policies (Cai Shui Zi [2006] No. 33 hereinafter referred to as the Circular), some regions have required to further specify the range of taxation, tax basis and other issues concerning the taxable consumption goods. Therefore, upon study, we hereby specify the relevant issues as follows:

1. As for the Range of Taxation of Several Oil Products


1. Reformatted, topped oil, pentane base oil, light cracking raw material (decompressed diesel fuel VGO and atmospheric diesel fuel AGO), heavy cracking raw material, hydro cracking tail oil, and arene raffinate oil are all light weight oil, thus shall belong to the scope of taxation of naphtha according to the explanatory notes on the range of taxation of naphtha of the Circular.
2. Wax oil, bunker fuel oil, atmospheric heavy fuel oil, decompressed heavy fuel oil, 180CTS fuel oil, No.7 fuel oil, furfural oil, industrial fuel, No.4-6 fuel oil and other major oil products, which are mainly used as fuel, shall belong to the scope of taxation of fuel oil in according to the explanatory notes on the range of taxation of fuel oil of the Circular.
3. The raw materials of rubber filling oil and solvent oil belong to the scope of taxation of solvent oil according to the explanatory notes on the range of taxation of solvent oil of the Circular.
4. The "mixed " lubricating oil made by mixing plant basic oil, animal basic oil and mineral basic oil (or mineral lubricating oil), without considering the proportion of the mineral basic oil (or mineral lubricating oil), all belong to the scope of taxation of lubricating oil.
5. As for the Definition of Reassembled and Refitted Vehicles

The reassembled and refitted vehicles refer to the special purpose vehicles (special type vehicles) whose vehicle category code (the first digital number of the digital paragraph of the code for vehicle model or product type) is 5 and which are examined and approved by development and reform commission at the provincial level and are reported to the National Development and Reform Commission for record and listed in the Announcement of Vehicle Manufacturing Enterprises and Products as announced vehicles

2. As for the Definition of Solid Wood Composite Floor

Solid wood composite floor takes wood as the raw material and is produced by planning or peeling the wood into veneers with certain techniques, and then processes the multi-layer veneers with compregnating and composite techniques. Currently, the solid wood composite floor mainly includes three-layer solid wood composite floor and multi-layer solid wood composite floor.

3. As for ax Levy on Such Simple Processing of Purchased Lubricating Oil as Changing the Large-scale Packing to Small-scale Packing and Labeling, etc. Any entity or individual's act of changing the large-scale packing of purchased lubricating oil to the small-scale packing by simple processing or only labeling without any processing, shall be regarded as an act of production of taxable consumption goods. The entity or individual shall pay consumption tax for the above-mentioned institutions. It is allowed to deduct the consumption taxes already paid on purchased lubricating oil.
4. As for the Calculation of the Deductible Volume of Consumption Tax Already Paid on the Purchased Naphtha That Is Used as Raw Materials in the Production of Both Taxable Consumption Goods and Non-taxable Consumption Goods at the Same Time in the Same Production Process

In case any naphtha which is purchased or taken back from commissioned processing is used as raw materials in producing ethylene or other chemical products, if both such non-taxable consumption goods as ethylene or other chemical products and such taxable consumption goods as cracked gasoline may be produced at the same time in the same production process, the accounting formulas of the deductible taxes already paid on the naphtha which is purchased or taken back from commissioned processing are as follows:

1. Purchased naphtha
Present deductible taxes already paid on purchased naphtha = present deductible quantity of purchased naphtha × yield × unit tax of the purchased naphtha × 30% Yield = output of present taxable consumption goods ÷ quantity of all raw materials put into the present production of taxable consumption goods × 100%
2. Naphtha taken back from commissioned processing

Present deductible taxes already paid on product oil of commissioned processing = present deductible taxes already paid on naphtha of commissioned processing × yield

Yield = output of present taxable consumption goods ÷ amount of all raw materials put into the present production of taxable consumption goods × 100%

The producing enterprises which use naphtha purchased or taken back from commissioned processing as raw material to produce ethylene or other chemical products shall respectively account the annual average yield of 2003, 2004 and 2005 according to the above-mentioned accounting formulas, and shall fill the annual average yield to the competent tax authorities for record.

5. As for Disposal of Underpayment When the Deductible Consumption Taxes Already Paid on the Raw Materials Put into the Present Production Is More Than the Present Taxable Consumption Taxes

In case the deductible consumption taxes already paid on the raw materials put into the present production is more than the present taxable consumption taxes, and the column of overpaid consumption tax of the previous period is not added in the consumption tax return, the deduction shall be applied in accordance with the amount of the present taxable consumption taxes, while the underpayment shall be brought over to the application of deduction of the next period.

6. As for the Medium or Light Commercial Passenger Vehicles and the Scope of Taxation The commercial passenger vehicles with over 7 meters long (including 7 meters) and the number of seats from 10 to 23 (including 23) are not within the scope of taxation of medium or light commercial passenger vehicles, thus no consumption tax may be collected thereon.

The Ministry of Finance

The State Administration of Taxation

August 30, 2006