Circular of the State Administration of Taxation concerning Related Specific Issues in respect of the Implementation of the Policies
on Adjusting the Wages Subject to Enterprise Income Tax

Guo Shui Fa [2006] No. 137

The state taxation bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central
Government, and cities specifically designated in the state plan:

Upon approval of the State Council, the quota of taxable wages to be deducted before the levy of enterprise income tax shall be uniformly
adjusted into RMB 1,600 per person per month as of July 1, 2006, and the policy of upward floating at 20 percent shall be halted
from implementation simultaneously. For the purpose of guaranteeing the smooth implementation of this policy from the second half
of this year, the relevant issues in the specific implementation are hereby announced as follows in accordance with the spirit of
the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting the Policies on the Deduction of Wage
Expenditures Prior to the Levy of Enterprise Income Taxes (Cai Shui [2006]) No. 126):

1.

Adjusting the rate for deduction of taxable wages before the levy of tax is a specific measure for the effective implementation of
the spirit of the Central Economic Working Conference, and an important policy adjustment before the reform of combination of the
two laws concerning enterprise income tax as well, which is advantageous for reducing the tax burden gap between Chinese-funded enterprises
and foreign-funded enterprises, and achieving impartial competition gradually. This policy adjustment is of great significance, and
affects the interests of the taxpayers. Consequently, the taxation organs at each level shall attach great importance to the effective
implementation of the policies, publicize the new policies on taxable wages in a timely, comprehensive and deep manner, ensure that
the taxpayers understand the spirit of the new policies as soon as possible and then file returns of prepayable enterprise income
tax under the new policies.

2.

The taxation organs at each level, especially the grass-roots taxation organs, shall promptly devote into the policy adjustment, ensure
the effective implementation of the new policies on taxable wages within this year, in order that the taxpayers may enjoy the preferences
from the policy adjustment on taxable wages by the end of December.

(1)

All grass-roots taxation organs shall assess the amounts of reduced enterprise income taxes carefully as a result of policy adjustment
on taxable wages, and shall adjust prepayable amounts declared by the taxpayers in each month (quarter) from July to December of
this year based on the assessment.

(2)

The issues on the enterprises that prepay taxes at the actual amount for the term of tax payment shall be handled separately according
to such two circumstances:

(a)

In case an enterprise prepays enterprise income tax on a monthly basis, it shall calculate and deduct the prepaid amount at the deduction
proportion as assessed under the aforesaid requirements when filing returns of the prepayable taxes in each month from September
to December of this year. And the enterprise shall file returns of prepayable taxes of September together with calculating the reduced
amounts of July and August, which shall be used to offset the prepayable taxes of September, while the insufficient part shall be
offset by the prepayable taxes of the subsequent months in this year until it is fully offset. The enterprise shall file returns
of prepayable taxes of November in December together with calculating the reduced amount of December, which shall be used to offset
the prepayable taxes of November, while the tax refund procedures for the insufficient part shall be completed by the end of December.

(b)

In case an enterprise prepays enterprise income tax on a quarterly basis, it shall calculate the reduced amount of the fourth quarter
in addition to calculating the reduced prepayable amount of the third quarter at the assessed proportion of reduction when filing
returns of the prepayable enterprise income tax of the third quarter. The reduced prepayable amount shall be used to offset the prepayable
taxes of the third quarter, while the tax refund procedures for the insufficient part shall be completed by the end of December.

(3)

The issues on the enterprises that prepay taxes at a certain proportion of the amount of taxable income in the last year shall be
handled separately according to such two circumstances:

(a)

In case an enterprise prepays enterprise income tax on a monthly basis at 1/12 of the amount of taxable income of the last year, it
shall reduce the prepayable amount in each month at the same proportion of reduction as assessed in light of the aforesaid requirements,
and the reduced amount of prepayable taxes of July and August shall be calculated and reduced simultaneously in September. If the
reduced amount as calculated is negative, the part excessive to the amount of prepayable taxes of September shall be reduced continuously
when the returns of prepayable taxes in the subsequent months are filed, until the said amounts are completely offset. The enterprise
shall file returns of prepayable taxes of November in December together with calculating the reduced amount of December, and use
the said amount to offset the prepayable taxes of November.

(b)

The matter concerning an enterprise that prepays enterprise income tax on a quarterly basis at 1/4 of the amount of taxable income
of the last year shall be handled in the way subject to Subparagraph 2 of Paragraph (2) in this Article.

(4)

The issues on the enterprises, the taxes of which are levied based on verification, shall be handled separately according to such
two circumstances:

(a)

As for the approved rate of taxable income, the rate shall be lowered accordingly at the proportion of reduction as assessed under
the aforesaid requirements, the reduced amount after the rate of taxable income is lowered shall be calculated, and the issue shall
be handled in the way subject to Paragraph (2) of this Article.

(b)

As for the approved amount of payable income taxes, the quota of each month shall be reduced accordingly at the proportion of reduction
as assessed under the aforesaid requirements, and the issue shall be handled in the way subject to Paragraph (2) of this Article.

3.

The amount of tax reduction of the taxpayers occurring due to the policy adjustment on taxable wages shall be incorporated into the
range of final settlement and payment after the end of this year, and be subject to final settlement and payment together with others.

4.

The taxation organs at each level shall rigidly carry out these policies, and may not illegally raise the rate of taxable wages or
provision the floating proportion for the certain regions under any excuses or in any form after the new policies on taxable wages
come into force. If the taxable wage rates are higher than the uniformly prescribed rate of the state in practical implementation,
it shall be remedied promptly. You shall strictly implement the applicable scope of the policies on taxable wages by connection of
wages with performance. No enterprise may adopt the method of connecting wages with performance except for the state-owned and state-holding
industrial and commercial enterprises, and financial and insurance enterprises that implement the policies on taxable wages by connecting
wages with performance and are restructured or reformed into joint stock enterprises upon examination and approval of the Ministry
of Finance and the State Administration of Taxation.

Where there is any question arising from the implementation of the new policies on taxable wages, it shall be timely reported to the
State Administration of Taxation.

The State Administration of Taxation

September 1, 2006