Clarification Issued on Consumption Tax for Taxable Consumer Goods

The Ministry of Finance and the State Administration of Taxation issued a notice interpreting provisions in the “Detailed Implementing Rules for the Interim Regulations of the People’s Republic of China on Consumption Tax (MOF Order No. 51, hereinafter referred to as the ‘Rules’)” on July 13.

According to Article 7, Paragraph 2 of the Rules, “direct sales of taxable consumer goods processed on commission should no longer be subject to payment of consumption tax.”

The notice clarifies this provision by providing that, a direct sale is deemed where the commissioning party takes back the taxable consumer goods and sells them at a price which is not higher than the taxable price adopted by the commissioned party. In this case, no consumption tax should be imposed. Where the commissioning party takes back the taxable consumer goods and sells them at a price which is higher than the taxable price adopted by the commissioned party, it is not deemed a direct sale and consumption tax should be declared and paid. The consumption tax withheld and paid by the commissioned party can be deducted for the purpose of tax calculation.

The notice will come into effect on September 1, 2012.

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