Legal Basis
Article 12 of the Provisional Regulations of the People's Republic of China on Value-added Tax (VAT)
The rate of VAT levied on small-sized taxpayers shall be 3%, unless otherwise provided by the State Council.
Article 15
The following items are exempted from value-added tax:
(1) Self-produced agricultural products sold by agricultural producers;
(2) Contraceptive medicines and paraphernalia;
(3) Antiquarian and antiquarian books;
(4) Imported instruments and equipments that are directly used for scientific research, scientific experiments and teaching;
(5) (v) imported materials and equipment provided by foreign governments and international organizations for free assistance;
(vi) items directly imported by organizations of disabled persons for the exclusive use of disabled persons;
(vii) items sold for their own use.
Except for the provisions of the preceding paragraph, the tax exemptions and reductions of value-added tax shall be prescribed by the State Council. No region or department may prescribe tax exemptions or reductions.
Article 16
Where a taxpayer engages in both tax-exempted and tax-reduced items, he shall account for the sales of the tax-exempted and tax-reduced items separately; if he fails to account for the sales separately, he shall not be exempted from or reduce the tax.