(Promulgated 25 June 1988 by the State Council)


Article 1. All urban and rural private enterprises which engage in areas of industry, construction, communications and transportation, commerce, the catering trade and other trades and industries, shall be regarded as obligatory payers of private enterprise income tax (hereafter referred to as taxpayers) and shall be required to pay tax in accordance with the provisions of these Regulations.


Article 2. The taxable income of a private enterprise shall be the gross income of a taxpayer in a tax year minus costs, expenses, and State permitted deductable tax payments.


Items able to be listed as expenses and standards by which a taxpayer may calculate income tax payments shall be stipulated by tax organs.


Article 3. Private enterprise income tax shall be levied at a rate of 35%.


Article 4. Subject to verification and approval by a provincial, autonomous region or directly administered municipal people's government, a taxpayer may be granted an income tax reduction or exemption for a certain period in any of the following instances:


(1) if waste materials, such as waste water, gas or residue, are used as the main raw materials in production;


(2) if there are genuine difficulties paying taxes because of disaster, such as a storm, fire, flood or earthquake;


(3) if a taxpayer requests a tax reduction or exemption in view of special circumstances.


Article 5. Except for cases prescribed under the provisions of Article 4, all other requests for a tax reduction or exemption shall be determined by the Ministry of Finance.


Article 6. If a taxpayer incurs a loss in a tax year, an equivalent amount may be allocated from the income of the following year to make up the loss, subject to approval by the tax organ. If the income of the following year is insufficient to cover the entire amount, the loss may be recovered gradually over successive years, but the maximum period shall not exceed three years.


Article 7. Private enterprise income tax shall be paid by a taxpayer to its local tax organ.


Article 8. Private enterprise income tax shall be levied annually and pre-paid in monthly or quarterly instalments. Excess payments shall be refunded and shortfalls shall be made good by the taxpayer during the time of final settlement at the end of the tax year. Details on the time limit for tax payments shall be determined by the relevant county or municipal tax organ.


Article 9. A taxpayer shall establish books of account, retain vouchers, compile and submit financial statements and file tax returns with the local tax organ, in accordance with tax organ provisions. Tax organs may impose penalties of up to 5,000 yuan on taxpayers who fail to act in accordance with regulations. A fine of up to 30, 000 yuan may be imposed in a serious case, subject to approval by a tax organ at the level of province, autonomous region or directly administered municipality.


Article 10. Administration of the levying of private enterprise income tax shall be implemented in accordance with the Provisional Regulations of the People's Republic of China governing Tax Revenue Administration.


Article 11. The Ministry of Finance shall be responsible for the interpretation of these Regulations and for formulation detailed implementing rules.


Article 12. These Regulations shall take effect from the 1988 tax year.