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Regulation

Mobile apps provide relief from headache of China’s new VAT codes

New 18-digit tax code can be saved and shared at the click of a phone camera thanks to new services rolled out by mainland internet giants

PUBLISHED : Monday, 10 July, 2017, 9:01am
UPDATED : Monday, 10 July, 2017, 9:00am

Accurately reproducing an 18-digit number is a tricky business. Mistakes can easily be made.

That’s why tech-savvy consumers and merchants in mainland China are turning to mobile apps like WeChat and Alipay to ease the pain caused by a complicated new procedure for claiming tax deductible expenses.

It follows a recent tightening of the process for claiming reimbursement of corporate expenses as Beijing steps up its oversight of revenue collection to plug loopholes that could potentially cost the state.

Since July 1, employees who want to obtain an invoice to prove the amount of money, including value-added tax (VAT), paid for things like meals, stationery and office equipment must provide an 18-digit corporate tax series code to the merchant in question.

Fortunately help is on hand from some of China’s biggest technology companies who have made it possible to save and share the confusing numerical sequence by simply scanning a QR code on their smartphone cameras.

Wu Lizhang, a human resources worker in Shanghai, said he and a colleague recently used the technology to copy and share a VAT tax code via WeChat, Tencent Holdings’ social media platform that boasts more than 900 million monthly active users.

WeChat’s program created a new QR code from the tax sequence input by Wu’s colleague from the relevant documentation, sent it to Wu via WeChat, and he was then able to reproduce the QR code for the merchant to scan.

Tao Ran, a staffer at a multinational company, turned to similar code-saving services offered by Ant Financial’s Alipay service.

Ant Financial, an affiliate of Alibaba Group, which owns the South China Morning Post, said it has also launched a QR code solution to make it easier for merchants to provide the VAT invoices. Tens of thousands of brands – including L’Oreal and Yonghui Superstores – have already tested the service, which will be rolled out for free to more merchants.

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A QR code, short for Quick Response code, is a type of barcode consisting of black and white squares arranged in a pattern on a grid which can be read by an imaging device.

“The new policy [from Beijing] reflects the authorities’ aim to step up tax collection oversight by taking more actions to plug loopholes,” said Kevin Zhou, a tax partner at EY in Shanghai. The new regime includes a more structured approach to any reimbursement claim requiring a VAT invoice.

The more stringent supervision further strengthens the already close monitoring of designated VAT invoices that has been in place for more than two decades, as China relentlessly beefs up its tax collection legislation.

The issuance and use of designated VAT invoices has been under tight scrutiny ever since China first introduced it in 1994. VAT is collected incrementally based on the surplus value added to the price of the work at each stage of production.

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The designated invoices, used by upstream enterprises to offset tax included in the prices of their purchases of products or services, can be a drain on the state coffers when they fall into unscrupulous hands.

Though the “general” VAT invoices, unlike the “designated” ones, can’t be used for offsetting VAT directly, they can be manipulated to inflate expenses and lead to a drain on income tax for the state, Zhou said. Companies could use them to increase the size of the deductions they claimed on expenses, while employees could do the same to line their own pockets.

The tighter scrutiny effective this month was made possible after the mainland completed a shift to a VAT regime on May 1, 2016. It requires the remaining four sectors – finance, construction, property and consumer services – to pay VAT instead of a business tax.

“When the page turned onto the new VAT era, the tax man saw the need to strengthen the policing of VAT invoices by putting in place a nationwide VAT tracking system. Big data is increasingly being used in the tracing and collection of tax,” Zhou said, adding that such scrutiny would only increase in intensity.

China’s income from tax revenues gained 5 per cent to 11.6 trillion yuan (US$1.7 trillion) in 2016.

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