China Esquire

I had a post earlier saying that Chinese tax enforcement was a problem both because of lack of enforcement codes that I was aware of (though if you know of any, I would love to hear it) and the Chinese way of trying to outsmart the system. I think this story from the BBC confirms some of my thoughts. First, the facts from the story:

Five men are to appear in court in China charged with producing fake receipts that could have cost the state billions of dollars, state media said.

The men are accused of forging over one million receipts worth a total of $147bn (£72bn) at a factory in Guizhou province.

“The fake receipts look almost the same as the real ones,” Tang Xiaozhou, Luoping’s taxation chief, told Xinhua.

“Consumers and even the tax collectors find it hard to distinguish.”

“If put into the market, the national treasury would have lost more than 75bn yuan ($10.5bn, £5bn) in tax revenue.”

Of course, my first reaction was to sum of money involved. It is a huge amount of money. But then here is the part that I think speaks volumes:

Because of China’s rapid economic growth, tax revenues have soared in recent years.

But the authorities have admitted that they need to improve tax collection, and take more action against people failing to report their true income.

There is an active black market for fake receipts in China, which companies can use to claim tax rebates on business expenses.

Let me note that tax enforcement is difficult for any country at any level. But the Chinese will need to come up with a system if the government wants to ensure that its tax income continues to rise with the economy. And even more, the government needs to instill in people at a societal level the sense that paying taxes is not a bad thing. (uncomfortable, yes; but bad, no) That is a difficult thing to do. (this is the sociologist in me speaking now) Message sending punishment is one way, but not always effective. It will take education, propaganda (positive reinforcement), message sending, and more.

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