The State Administration of Taxation (SAT) issued Circular Guoshuifa [2009] No.85 (Circular No. 85), "Notice on the guidelines to strengthen the administration and collection on taxes", on 29 April 2009. Circular No.85 introduces comprehensive guidance to enhance the administration and collection for various types of taxes, with a focus on the following:

• turnover taxes (i.e. value added tax, business tax and consumption tax)
• corporate income tax
• individual income tax
• property taxes
• international tax (include transfer pricing and withholding taxes)

The intention of releasing this circular is to emphasise the central government's desire to ensure a stable growth of tax revenue in 2009 and in future years.

Our comments

All taxpayers should assume that the local tax authority will follow these requirements and guidance to perform tax inspection and tax audits to strength the tax administration and collections.

We therefore recommend that taxpayers review their tax compliance status and make appropriate actions to rectify any non-compliance. Clients engaged in the industries which the SAT will focus on should pay particular attention to this Circular.

We set out below the key areas of focus for the SAT:

Value Added Tax (VAT)   

• enterprises utilising the agriculture products as the major raw materials for production will be the key target for VAT inspection, especially those which purchase agriculture products in cash and with significant magnitude.
• the SAT will work with the Customs Authority to launch a new tax administration system called “Check consistency first, credit after" to strengthen the verification of the VAT payment certificates obtained by the tax payers from the Customs Authority. This will become a statutory requirement before the tax payers can claim credit for input VAT paid for the imported goods/ raw materials.

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