Article 1 All units and individuals engaged in the sales of goods, provision of processing, repairing and replacement services, and the importation of goods within the territory of the People's Republic of China are the taxpayers of Value-Added Tax (VAT) (hereinafter referred to as the taxpayers), and shall pay VAT in accordance with the Regulations.

Article 2 VAT rates:

(1) For taxpayers selling or importing goods other than those specified in items (2) and (3) of this Article, the tax rate shall be 17 percent.

(2) For taxpayers selling or importing the following goods, the tax rate shall be 13 percent:

a. Grains, edible vegetable oils;

b. Tap water, heating gas, cooling gas, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, coal/charcoal products for household use;

c. Books, newspapers, magazines;

d. Feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and plastic film for farming; and

e. Other goods as specified by the State Council.

(3) For taxpayers exporting goods, the tax rate shall be zero, unless otherwise specified by the State Council.

(4) For taxpayers providing processing, repairing and replacement services (hereinafter referred to as taxable services), the tax rate shall be 17 percent. Any adjustments to the tax rates shall be determined by the State Council.

Article 3 For taxpayers concurrently dealing in goods or providing taxable services of different tax rates, the sale amounts of goods or taxable services of different tax rates shall be accounted separately and if the sale amounts have not been accounted separately, higher tax rates shall apply.

Article 4 Except as stipulated in Article 11 of the Regulations, for taxpayers engaged in the sales of goods or the provision of taxable services (hereinafter referred to as selling goods or taxable services), the tax payable shall be the balance of the output tax of the period after deducting the input tax of the period. The formula for computing the tax payable is as follows:

Tax payable = Output tax payable of the period - Input tax of the period

If the output tax of the period is less than and insufficient to offset the input tax of the period, the excessive input tax can be carried forward for set-off in the following periods.

Article 5 For taxpayers selling goods or taxable services, the output tax shall be the VAT payable calculated on the basis of the sale amounts and the tax rates prescribed in Article 2 of the Regulations and collected from the purchasers. The formula for computing the output tax is as follows:

Output tax = Sale amount x Tax rate

Article 6 The sales amount shall be the total of all the prices and all other fees receivable from the purchasers by the taxpayer selling goods or taxable services, exclusive of the output tax collected.

The sale amount shall be computed in renminbi. The sale amount of the taxpayer settled in other currencies than renminbi shall be converted into renminbi.

Article 7 Where the price used by taxpayers in selling goods or taxable services is obviously low without due reasons, the sale amount shall be determined by the competent tax authorities.

Article 8 For taxpayers who purchase goods or receive taxable services (hereinafter referred to as purchasing goods or taxable services), VAT paid or borne shall be the input tax.

The following amounts of input tax shall be credited against the output tax:

(1) VAT indicated in the special VAT invoices obtained from the sellers;

(2) VAT indicated on the special letter of payment of duties of customs import VAT from the customs office;

(3) For purchase of agricultural produces, except for obtaining the special VAT invoices or the special letter of payment of duties of customs import VAT, the input tax shall be calculated on the basis of the purchase price indicated in the invoices for purchase of agricultural products and at the deduction rate of 13 percent. The formula for calculating the input tax is as follows:

Input tax = Purchase price x Deduction rate

(4) For purchasing or selling goods and payment of transportation expenses during production and operation process, the input tax shall be calculated on the basis of the transportation expenses indicated on the documents of settlement of transportation expenses and at the deduction rate of 7 percent. The formula for computing input tax is as follows:

Input tax = Transportation Fee ? Deduction rate

The adjustment of credit items and deduction rate shall be determined by the State Council.

Article 9 Where the deduction vouchers of VAT for the taxpayers purchasing goods or taxable services are not in compliance with laws, administrative regulations or the relevant provisions of the tax competent authorities under the State Council, no input tax shall be credited against the output tax.

Article 10 Input tax of the following items shall not be credited against the output tax:

(1) Goods purchased or taxable services used for Non-VAT taxable items, VAT exempt items, collective welfare or individual consumption;

(2) Abnormal losses of goods purchased and related taxable services;

(3) Goods purchased or taxable services that are consumed for work in progress or finished goods of abnormal losses.

(4) Self-use consumer goods of the taxpayers provided for by the competent authorities of finance and tax under the State Council;

(5) Transportation expenses of the goods specified in Items (1)-(4) of this Article and the transportation expenses for selling tax-exempted goods.

Article 11 Small-scale taxpayers engaged in selling goods or taxable services shall adopt a simplified method for calculating the tax payable on the basis of the sale amount and the levy rates without credit against input tax. The formula for calculating the tax payable is as follows:

Tax payable = Sales amount ? Levy rate