For the consideration of national health, China levies consumption tax on alcohol and regulates the market by applying different tax rates to different kinds of alcohol. Previously, there were problems such as confusion in the collection of excise tax on prepared wines in some areas, and some wineries, in order to avoid the excise tax, adopted the method of changing "white wine" into "prepared wines" to reduce the tax burden, which resulted in the market chaos, and for this reason, the state issued a number of regulations to rectify the situation. However, due to the differences in the interpretation and understanding of the regulations by tax authorities around the world, the application of the regulations has been controversial. In this paper, the main controversial focus of the consumption tax on prepared wine and medicinal wine is systematically explained in China's consumption tax on prepared wine and medicinal wine for readers' reference.

I. Analysis of the Prepared and Medicinal Wines Industry

In recent years, prepared wines (also known as liqueurs) have been developing rapidly. According to public data, the international prepared wine market will exceed USD 30 billion in 2022, and China and other places have become the main markets of the prepared wine circuit, while according to the "China Wine Industry Economic Operation Report 2022" published by China Wine Industry Association, the market scale of China's prepared wine market has been expanding, and with the implementation of the standards for beverage wines and prepared wines and the with the implementation of beverage alcohol and prepared wine standards, and the convening of conferences such as the China Nectar Summit, the prepared wine industry has been increasingly favored by major alcohol manufacturers and the capital market.

Medicinal wine has a history of thousands of years in China, from the initial dissolution of the good medicine to the present tens of billions of dollars of industry, during which it has experienced several twists and turns, and the state has repeatedly taken action to rectify the chaos in the market. Pharmaceutical wine market gradually standardized at the same time, the industry has also been a significant development, in recent years, China's medicinal wine to maintain a long-term growth rate of more than 10%, 2022 market size has exceeded 30 billion yuan.

II.Commentary on the controversy over the application of tax rates on prepared and medicinal liquors

(I) The application of excise duty on prepared wines has been changed several times.

In 1993, since the implementation of China's first "Provisional Regulations on Consumption Tax", the application of the tax rate for prepared wine has always been controversial, due to the fact that the "Provisional Regulations on Consumption Tax" and the implementation rules for "other wines" in 1993 were more general, and there was a big controversy over the issue of whether "other wine tax rate or baijiu tax rate" should be applied to "prepared wines based on baijiu", etc. It also led to the confusion of the collection in practice. Other wine tax rate or white wine tax rate" and other issues are more controversial, but also led to the practice of levy confusion, for some wineries by adding fruit juice, herbs and other additives to white wine into the "white wine" for the "formulated wine The problem of applying a lower tax rate by adding fruit juice, medicinal herbs and other additives to liquor by some wineries to turn "white wine" into "prepared wine" has never been properly resolved. In order to combat the chaos in the liquor market, the State Administration of Taxation (SAT) issued the "Provisional Regulations for the Implementation of Consumption Tax Rules" on the third day of the release of the "Scope of Consumption Tax Notes" (Guo Shui Fa 〔1993〕 No. 153, hereinafter referred to as "No. 153"), for the classification of common liquors in the market to be divided into categories, and included in the corresponding tax items. The following day, the State Administration of Taxation issued the Notice on Several Taxation Issues of Consumption Tax (Guo Shui Fa [1993] No. 156), which stipulated that "additives" liquor should be taxed according to the tax rate of grain liquor and potato liquor, which was a powerful blow to the illegal behaviors of unscrupulous merchants, but at the same time, the strict requirements also led to the "injury of innocence" to some of the normal operation of the formulated liquor manufacturers. But at the same time, the strict requirements have also led to some normal operation of the formulated liquor manufacturers were "hurt innocent".

However, due to the large differences in the application of the above provisions by the tax authorities in various regions, there is the problem of "different taxes for the same wine", and the State Administration of Taxation issued the "Circular (1997) on Certain Taxation Issues of Consumption Tax" (Guoshifa 〔1997〕 No. 84) in 1997, which makes it clear that "for the wine prepared or made by Enterprises to white wine and alcohol as the base, adding fruit juice, spices, coloring, herbs, supplements, sugar, seasonings, etc. prepared or brewed wine, no longer according to "other wine" subheading of the "copy of the wine" tax, all according to the base of the raw materials used to determine the applicable tax rate of white wine. Where the raw materials used in the base of the liquor cannot be determined, the consumption tax shall be levied at the rate of grain liquor." All the liquor-based liquor manufacturers were "spared". Meanwhile, in May 2001, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of Consumption Tax Policies on Alcoholic Beverage Products (Cai Shui [2001] No. 84, hereinafter referred to as "No. 84"), which adjusted the taxing method of grain white wine and potato white wine to the composite taxing method, i.e., to implement the calculation method combining the quantitative fixed amount and the ad valorem fixed rate. The tax burden of prepared liquor manufacturers has further increased.

In 2008, the newly revised Provisional Regulations on Consumption Tax and its implementation rules were officially released, which continued the provisions of Circular 84. In the same year, the Classification of Beverage Alcohol (hereinafter referred to as the "Beverage Alcohol Standard") was also issued by the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China ("AQSIQ") and the State Standardization Administration of the People's Republic of China ("SASC"), which classified alcohol into three major categories, namely, fermented alcohol, distilled alcohol and prepared alcohol, and provided more detailed and precise definitions of each type of alcohol. 2011 In 2011, the State Administration of Taxation ("SAT") issued the Announcement on Issues Concerning the Applicable Tax Rates for Consumption Tax on Prepared Liquor (SAT Announcement No. 53 of 2011, hereinafter referred to as "Announcement No. 53"), which adopted the relevant provisions of the Standard and provided a more detailed classification of the tax rates of prepared liquors, and reclassified prepared liquors complying with the standards of the Food and Drug Administration ("FDA") as It reclassified prepared wines complying with the FDA standard into the category of "other wines". Since 2010, prepared wines have gained popularity among young people and the market scale has been expanding, and they no longer exist as a supplement to the low-end price of the market. With more scientific standards for the identification of prepared wines and more rigorous application of tax rates, prepared wines have regained the attention of some wineries.2021, the State Administration of Market Supervision and the State Standardization Administration revised the standard for beverage wines.

With the announcement of Circular No. 53 and the classification standard of beverage alcohol, the applicable tax rate of prepared liquor has been gradually clarified, and the regulation of the prepared liquor market has been basically perfected.Circular No. 53 has changed the previous distinction of liquor categories based on "raw materials", and adopted the classification of "distilled spirits" to "include" all liquors. All liquors are "under the banner", and the alcohol content and safety standards for prepared wines are stipulated, for those prepared wines that have obtained the "State Food and Health Character or Wei Food and Health Character" and are "less than 38 degrees", "other wines" are allowed to be applied, and "other wines" are allowed to be applied. For prepared wines that have obtained the "State Food and Health Certificate or the Wei Food and Health Certificate" and are "less than 38 degrees", the tax rate of "other wines" is allowed to be applied.

(II) Medicinal wines may be required to be taxed at the rate of "liquor".

Compared with the prepared wine, there are fewer provisions on the consumption tax of medicinal wine, and the definition of medicinal wine by the tax authorities is only stipulated in Article 153 (Notes on the Scope of Collection of Consumption Tax), which has not been revised since then.Article 153 stipulates that, "Medicinal wine refers to the wine that has been infused or prepared in accordance with the standards of the medical and health departments by using white wine and yellow wine as the base for the addition of a variety of medicinal herbs. " This provision consists of two parts, namely, "in accordance with the standards of the medical and health departments" and "made or prepared by adding various medicinal herbs to white wine or yellow wine as the wine base".

First, The requirement of "meeting the standards of the medical and health sector"

The "standards of the medical and health departments" are not detailed in the regulations, and it can be found through the search of the implementation standards of various medicinal wines in China that the implementation standards of medicinal wines are all included in the drug standards of the Ministry of Health of the People's Republic of China, i.e., medicinal wines are different from other wines, which are in essence "medicines" and should comply with the provisions of Article 32 of the Drug Administration Law, i.e., "medicines must comply with the national drug standards. That is to say, unlike other liquors, medicinal wines are in essence "medicines" and should comply with the provisions of Article 32 of the Drug Administration Law, i.e. "Medicines must comply with the national drug standards. Chinese medicinal tablets shall be in accordance with the provisions of Article 10(2) of this Law. The Pharmacopoeia of the People's Republic of China and the drug standards promulgated by the drug supervision and administration department of the State Council are the national drug standards. The Drug Administration under the State Council organizes the Pharmacopoeia Committee, which is responsible for the formulation and revision of national drug standards. The drug testing organization of the drug supervision and administration department of the State Council is responsible for calibrating the national drug standards and controls." Based on this, the requirement of "conforming to the standards of the pharmaceutical and health departments" means that the medicinal wine should conform to the relevant provisions of the Chinese Pharmacopoeia issued by the State Drug Administration and obtain the corresponding approval number.

Second, Provisions for "using white wine or yellow wine as the base for liquor and adding various medicinal herbs to brew or prepare".

There is some overlap between this regulation and the regulation on prepared wine, according to the provision of No. 53: "Prepared wine (liqueur) refers to beverage wine made from fermented wine, distilled wine or edible alcohol as the wine base, with edible or medicinal and food additives added as excipients or food additives, blended, mixed or reprocessed to make, and with a change in the style of the original base of its wine. " It can be seen that a clear distinction between medicinal wines and prepared wines cannot be made on the basis of this standard alone. Since both No. 158 and No. 53 are departmental normative documents, there is no conflict in effectiveness, but No. 158 was issued earlier, so some regional tax authorities believe that medicinal wines should be subject to excise tax according to the provisions of No. 53, which does not include the wines with FDA-approved license numbers in the category of "other wines". Since the No.53 document does not include the liquor with the approval number of the Drug Administration into the category of "other liquor", the medicinal liquor factory has to face the situation of filing tax returns according to the tax item of "white liquor", which will significantly increase the tax burden of the enterprise and have a serious impact on the normal business operation of the enterprise. In addition, each region in China has set a minimum excise tax declaration price for local liquor, but medicinal liquor is not included in the relevant regulations, so medicinal liquor factories may be subject to the approval of the tax authorities on the minimum price.

III. Eligible prepared wines and medicinal wines shall be subject to the "other wines" rate.

(I) Eligible prepared wines shall be subject to the "other wines" rate.

No. 53 for the provisions of the prepared wine has been more clear, for has obtained the "national food JianZi document number", and the alcohol content is less than 38 degrees of the prepared wine, should be based on the provisions of Article 2, paragraph 1, according to the consumption tax rate table "other wine" 10% applicable tax rate for the consumption tax.

(II) Eligible medicinal wines shall also be subject to the "other wines" rate.

There is a clear distinction between medicinal wines and prepared wines, and medicinal wines should not be regarded as prepared wines, and the tax rate of "other wines" should be applied to qualified medicinal wines for the following main reasons:

From the essence of medicinal wine, medicinal wine belongs to medicines, which is obviously different from beverage wine, according to the provisions of Article 1 of the Drug Administration Law: medicines refer to "substances used for the prevention, treatment and diagnosis of human diseases, the purposeful regulation of human physiological functions, and the stipulation of indications or functions, usage and dosage, including traditional Chinese medicines, chemical medicines, and biologically produced products. " Therefore, it should not be included in the category of beverage alcohol, and it should not be recognized that medicinal wine belongs to the category of "prepared wine".

From the legislative purpose, the reason why the state levies a higher consumption tax on liquor is that liquor contains a large amount of alcohol, and excessive drinking of liquor will lead to excessive intake of alcohol in the human body, which will damage the function of important organs of the human body, such as the liver, heart, kidneys, etc., and jeopardize the physical and mental health of the people, and also induce traffic accidents, crime and unemployment and other social problems. Therefore, the state has been strictly managing the production and distribution of liquor. Part of the prepared wine manufacturers to circumvent the state control, change "white wine" for "prepared wine" to reduce the tax rate at the same time depress the price of the product, contrary to the original legislative intent of the liquor consumption tax. However, medicinal wine as medicine, through the State Drug Administration certification, can play a role in improving human health and prolonging the efficacy of life, the application of "white wine" tax rate, not only contrary to the legislative intent of the liquor consumption tax, but also hinder the benign development of national physical and mental health.

From the provisions of the article, the 158th did not include medicinal wine into the category of prepared wine, but defined the two separately, and it can be seen that there is a clear distinction between the policy on medicinal wine and prepared wine, therefore, the state should not be regarded as the policy regulation of prepared wine as the regulation of medicinal wine, i.e., the provisions of the 53rd article are not applicable to medicinal wine. At the same time, the provisions of No. 158 for medicinal wine have not been invalidated, and there is no conflict of effect between the two documents, and medicinal wine should be taxed according to "other wine".

IV. Summary

As mentioned earlier, the announcement of the 53rd document has effectively rectified the chaotic situation of the original prepared wine market taxation, and the refinement of the corresponding regulations with reference to the standard of beverage wine has promoted the development of the beverage wine industry in China. Wine has been known as "the longest of all medicines", and medicinal wines, as the inheritance of medical knowledge and culture in China for thousands of years, play an important role in the health of the nation. However, due to the complexity of the relevant provisions of the consumption tax on alcohol, there are differences in the understanding of the laws and regulations of the tax authorities in various regions, and there may be errors in the application of the tax rate on prepared wines and medicinal wines. Enterprises should actively communicate with the tax authorities, and adopt legal and effective ways to clarify the views of enterprises, in order to strive for a more satisfactory result.