128m yuan tax fraud linked to building of Qinghai-Tibet railway

PUBLISHED : Tuesday, 18 August, 2009, 12:00am
UPDATED : Tuesday, 18 August, 2009, 12:00am

When it comes to the widespread tactic of using fake receipts for tax evasion on the mainland, not even the government's pet construction project, the Qinghai-Tibet Railway, is immune.

More than 20 companies and people who supplied construction materials from gravel and steel to diesel and power cables are facing tax evasion charges for submitting fake receipts of up to 128 million yuan (HK$145 million) to the government unit in charge of constructing the Xining to Golmud stretch of the railway.

The heavy reliance on the issue and collection of fa piao (official receipts issued by the tax bureaus), as evidence of business deals for tax purposes, had made exploitation of fake receipts a peculiar and chronic headache for tax authorities, mainland tax experts said.

A law-abiding business on the mainland should buy booklets of official receipt forms at a nominal fee from the tax bureaus, which then use the receipts as a means to document the company's business activities.

However, a report in the People's Daily yesterday said statistics showed that nearly 9,000 fake receipt cases had been investigated in the first half of the year, that 3,000 people were arrested for making and selling fake receipts, and that a total of 560 million yuan in tax income would have been lost.

In the construction of the railway alone, the Qinghai provincial tax bureau has confiscated 1,154 fake receipts totalling 4.94 million yuan.

From spam text messages to the exits of subway stations, finding a fake receipt supplier in large mainland cities is far from difficult. And despite a series of crackdowns by the police and tax authorities, the problem persists.

Unabated demand was one main reason, officials said, with personal income tax and corporate tax rates hovering at around 30 per cent.

Some people use fake receipts to claim expenses as part of their monthly income, though this does not appear on tax forms as taxable income; companies use fake receipts to create non-existent expenses, which would be deductible from their taxable profit; industries issue fake receipts to avoid paying value-added tax for the goods they sell.

Fakes also come in handy when filling in gaps in the books of corrupt individuals or corporations.

On top of stepping up checks on the supply and demand for fake receipts, tax experts from the mainland said it should gradually move away from the traditional reliance on official receipts as auditing evidence.

'Exercising taxation control through the use of the official receipts is a form of management that awaits reform,' Chinese Academy of Social Sciences economics professor He Zhenyi said.

'Weak punishment and weak concept of law have also made people believe they can get away with using fake official receipts,' he said.

From giving allowances to people instead of reimbursing expenses based on the presentation of the official receipts, to paying for construction based on finely calculated estimates as contained in contracts rather than the amount actually spent, there are many ways to bypass the use of the small pieces of paper.

'To truly resolve this problem would require improvement in many areas, from fully digitalising the taxation system, to the maturing of accounting practices,' Professor He said.