GuoFa [1997] No.5 February 19, 1997

The people's governments of all provinces, autonomous regions, municipalities directly under the Central Government, all ministries, commissions and directly subordinate institutions of the state council:

For the purpose of bringing into play the role of taxation in regulation and control, further smoothing the relations of distribution between the State and the financial and insurance enterprises, promoting equal competition among financial and insurance enterprises and guaranteeing the financial revenue of the State, the State Council decides to adjust the taxation policy for the financial and insurance industries as of January 1, 1997. The related questions are hereby notified as follows:

1. Standardize the income tax rate of the financial and insurance enterprises. The income tax rate of 55% currently in force for the financial and insurance enterprises, their income tax rate shall be unifiedly reduced to 33%. Budget grades for the income tax of the financial and insurance enterprises shall remain unchanged.

2. Revise the provisions on sales tax rate for the financial and insurance industries in the Interim Regulations of the People's Republic of China on Sales Tax, raising the current sales tax rate of 5% for the financial and insurance industries to 8%. After the increase in the sales tax rate,exclusive of the sales tax paid by the head offices of all banks and insurance companies which shall be the revenue of Central finance in its entirety, the sales tax paid by other financial and insurance enterprises,the portion collected according to the original 5% rate goes to the revenue of local finance, the portion collected according to the raised 3% rate belongs to Central finance.

3. Financial enterprises with foreign investment and foreign financial enterprises set up in the special economic zones(including Shanghai Pudong New Development Zone and Suzhou Industrial Park, the same hereinafter),whose sales revenue originating from inside the special economic zones shall continue to implement the preferential policy of sales tax exemption starting from the date of registration and collection at the rate of 8% shall be enforced upon expiration of the exemption period; the portion of sales revenue originating from outside the special economic zones, the preferential policy of tax exemption for special economic zones shall no longer be implemented, and relevant taxation policy for financial enterprises with foreign investment and foreign financial enterprises established outside special economic zones shall be implemented.

4. For financial and insurance enterprises with foreign investment and foreign financial and insurance enterprises established outside special economic zones before December 31, 1996, sales tax shall be levied at the reduced rate of 5% which shall remain to be revenue of local finance before December 31, 1998; sales tax shall be levied at the rate of 8% as of January 1, 1999.Financial and insurance enterprises with foreign investment and foreign financial and insurance enterprises newly established outside special economic zones after January 1, 1997 shall all implement the sales tax rate of 8%.

5. After the increase in sales tax rate for the financial and insurance industries, State policy banks shall be levied at the reduced rate of 5%.Sales tax paid by policy banks shall be returned to them as State capital investment. The return policy shall cease to be implemented starting from the date when capital of policy banks reaches the amount prescribed by the State Council.

6. After the increase in sales tax rate for the financial and insurance industries, sales tax of rural credit unions shall be levied at the reduced rate of 5% before December 31, 1997 which shall continue to be the revenue of local finance;it shall be levied at the resumed rate of 8% as of January 1,1998.

7. After the increase in sales tax rate for the financial and insurance industries, urban maintenance and construction tax and additional education fee levied along with sales tax shall continue to be calculated and levied at the original rate of 5%, the portion of the increased rate of 3% shall be exempted. Revenue of additional taxation shall continue to be revenue of local finance.

8. After the increase in sales tax rate for the financial and insurance industries, sales tax of financial and insurance enterprises the collection of which is the responsibility of the collection organs under local tax bureaus currently shall be jointly collected by collection organs under State tax bureaus and local tax bureaus. Among this tax, the portion calculated and levied at the original rate of 5% shall be collected by collection organs under local tax bureaus, the portion calculated and levied at the increased rate of 3% shall be collected by collection organs under State tax bureaus. Sales tax paid by head offices of all banks and insurance companies shall continue to be collected by collection organs directly under the State Administration of Taxation . Urban maintenance and construction tax and additional education fee levied along with sales tax shall be collected by collection organs under local tax bureaus.

Adjustment of taxation policy for the financial and insurance industries constitutes an important decision made by the State Council, people's governments of all localities must attache great importance to it and strengthen leadership; organs of State tax bureaus and local tax bureaus at all levels should closely cooperate with each other, really strengthen taxation administration, plug tax avoidance, evasion and leakage; all financial and insurance enterprises should further enhance the consciousness of paying tax, declare and pay tax in sufficient amount and timely in accordance with the provisions of the State to ensure the implementation of the State taxation policy for financial and insurance enterprises.

Promulgated by The State Council on 1997-2-19