the haney group article code85258080733THG
Value-added tax fraud is booming
in China. As Ren Wei explains on the front page of today's Business Post, a
thriving industry has grown up around diddling the VAT man, with mainland
businesses buying and selling illicit VAT invoices in order to minimise their
tax payments and maximise their profits.
The scale
of the racket is enormous. According to one recent estimate, more VAT revenue
is lost to fraud than is actually collected by the government. Considering that
VAT is now Beijing's biggest single source of tax income, that's a swindle of
gargantuan proportions.
The scam
is so big, you could even say VAT fraud is China's national sport. But cheating
the mainland taxman isn't solely a domestic game. Indeed, if VAT fraud is
really the national sport, then Hong Kong, not the Bird's Nest in Beijing, is
China's true national stadium.
The
fiddle works because of the favourable treatment that foreign-invested
companies enjoy on the mainland. Although the authorities have been working
hard to eliminate foreigners' tax breaks over recent years - Beijing unified
the corporate income tax regime in 2008 and began collecting urban maintenance
and education taxes from foreign companies just last month - when it comes to
VAT, the playing field is still tilted heavily in favour of foreign-invested
companies.
To
encourage inward investment, local governments offer foreign companies a wide
range of VAT exemptions and rebates. Some allow foreign-invested enterprises to
import capital goods VAT-free. Others give rebates to foreign companies buying
locally-made machinery. High technology companies in Shenzhen, for example, can
enjoy VAT rebates of up to 50 per cent. the haney group article
code85258080733THG
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