10. TAX REPORTING AND COLLECTION
A tax year for an enterprise is the calendar year. The enterprises income tax is prepaid in monthly or quarterly installments within 15 days after the end of a month or a quarter. The prepayment should be made based on the actual profits and if it is difficult to find out the figures, it can use last year’s monthly or quarterly figures.
a The taxable income for a toys factory in last year was RMB4,000,000, the factory starts to prepay the income tax in quarterly this year and if there is difficult in finding out the figures. Calculate the prepayment for the factory.
Enterprises are allowed to prepay their income tax in quarterly installments. The prepayment for the factory = 4,000,000 ¡Â 4 x 33% RMB33O,000.
The annual settlement should be made within 4 months after the end of the tax year. Any overpayment or understatement is to be settled after the tax bureau’s approval. If there is any foreign currency involved, it should be translated into RMB at the applicable exchange rate prevailing on the last day of each month or quarter. At the end of the year, any paid tax for foreign currency transactions before cannot be readjusted. Only the tax on outstanding foreign currency transactions translated at the year-end rate needs to be paid.
(a Mock exam question
A nationalized communication company set up in year 1996, it had RMB 150,000 of profit at that year. In year 1997, it had income of RMB12,900,000, cost RMB4,800,000, sales tax and surcharge RMB525,000, investment income RMB9O,000 (including interest of national debenture RMB6O,000, interest income of corporate debenture RMB3O,000), non-operating income RMB3 00,000, non- operating expenses RMB 1,275,000 (including donation to an institute RMB1,200,000; penalties RMB45,000 from tax authority because it paid RMB3O,000 consulting fee to individual but no withholding), management fee RMB4,200,000, finance expense RMB2,250,000.
The company reported its income for the year 1997 is:
Taxable income = 12,900,000 - 4,800,000 - 525,000 + 90,000 + 300,000 - 1,275,000 -4,200,000 -2,250,000 = RMB24O,000
Tax payable = 240,000 x 33% RMB79,200
Required:
Point out the mistakes in the calculation if there is any and make your own correct calculation of the income tax. Also point out the penalties from tax authority is reasonable, if not, state what the mistakes are and suggest applicable methods for the company to protect its interest.
The calculation of the income tax is incorrect, the mistakes are:
Among RMB9O,000 of investment income, national debenture interest income RMB6O,000 is non taxable.
RMB 1,200,000 of donation cannot be deducted from the taxable income.
RMB45,000 of penalties from the tax authority cannot be deducted from the taxable income.
For the newly set up post and communication enterprise, there is half reduction of tax payable for the second year.
The tax payable for the enterprise:
Taxable income: 12,900,000 - 4,800,000 - 525,000 + (90,000 - 60,000) + 300,000 - (1,275,000 - 1,200,000 -- 45,000) - 4,200,000 - 2,250,000 = RMB 1,425,000
Tax payable = 1,425,000 x 33% ¡Â2= RMB235,125
The penalties from the tax authority is not reasonable. Based on the rules of tax collection, the payer did not withhold, the penalties fee should be over 50% but under 3 times of amount.
The withholding individual income tax 30,000 x (1 - 20%) x 30%-2000
RMB5, 200
The maximum of the penalties = 5,200x 3 = RMB 15,600
The company can have an option to have a review first within 15 days after the receipt of the assessment or straightly go for a court litigation.
(L(Question 3, June 1999)
Fortune Company Limited (FCL) is a state-owned enterprise establishes in China and has been doing business since 1984. The following is the profit and loss statement of the Company for the year ended 31 December 1999:
RMB
Sales 8,639,000
Less: discount and allowances 185,650
Net Sales 8,453,350
Less: sales tax and additional fees 40,100
cost of sales 5,976,240
Gross profit 2,437,010
Less: sales expenses 48,300
general and administrative expense 162,000
Financial expenses 319,750
(including: interest expense (less interest income
Income from sales of product
Add: income from other operations Operation income
Add: investment income
non-operation income
Less: non-operation expenses Net income
@ (Question 2, June 2000)
The following are the income and expense of company s in 1999:
total sales
after-tax profit from the Company's investment interest from State Treasury Bond
interest from enterprise bond
refunded VAT
Cost
including: salary for employees
three funds
marketing expense
tax and other fees
1,906,960
700,000
2,606,960
0
500,000
298,000
2,808,960
358,000)
38,250)
Notes:
1. The sales include RMB3 19,650 sale of new products using waste, which falls in the List of Comprehensive Utilization of Resources and is directly generated from the production process. The new product is the achievement of a research project completed in 1994.
2. The company has 82 employees, and the salary paid to employees total led to
RMB 1,494,500.
3. The company borrowed RMB 1,800,000 from another enterprise for which it paid RMB 500,000 interest. Interest rate for same period loan from the commercial bank was 10%.
4. Income from other operation refers to earnings from issuing stocks.
5. Non-operation expenses include: fees paid to community for trees, flowers and lawn maintenance, which was RMB 12,000 per month; RMB 150,000 donation paid to China Hope Project and RMB 4,000 donation to an employee for his sick child.
6. The company included RMB 135,800 for the funds (trade union fund, employee welfare fund, employee training fund) for this year in the production costs.
7. RMB 135,800 expenses for entertaining guests were also included in the production cost.
Required:
Calculate the enterprise income tax for FCL for the year of 1999, and explain the adjustments you have made.
80,000,000
300,000
2,000,000
100,000
2,000,000
32,000,000
5,000,000
875,000
3,000,000
500,000
including fine for delayed tax payment 50,000
administration expense 4,000,000
including: expense for treating guests 450,000
expense for sponsoring a concert 40,000
The following is the calculation by Company S of the income tax payable for 1999:
Taxable income
80,000,000 - 32,000,000 - 500,000 - 4,000,000 + 100,000 - 50,000 - 40,000
3,000,000 = 40,510,000
The income tax payable is
40,510,000 33% 13,368,300
Note: 1. The income tax rate of the company in which Company S invested is 15%.
2. Company S has 200 employees with a standard salary of 660 per capita per month.
You are required to point out the mistakes in the calculation, giving brief reasons, and make your own correct calculation of the income tax.