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Preventing VAT Evasion in China: Lessons from Europe

Fang, Wenxin LU (2011) HARM53 20111
Department of Business Law
Abstract
VAT was first introduced in China in 1979 as an experiment, and was officially imposed in 1984. Since then VAT has been contributing a substantial portion to tax revenue of the state. China, like any other countries in the world, has been facing enormous VAT fraud/evasion, including but not limited to phony VAT invoices fraud and export VAT refund fraud. China has been planning to promulgate a VAT law, which entails a through VAT reform to be conducted to merge business tax into VAT and turn the current quasi-VAT system into a real VAT system. It is imagined that after the promulgation of the Chinese VAT Law and the merger of business tax into VAT, VAT evasion in China would be significantly increased due to the greater coverage/base of... (More)
VAT was first introduced in China in 1979 as an experiment, and was officially imposed in 1984. Since then VAT has been contributing a substantial portion to tax revenue of the state. China, like any other countries in the world, has been facing enormous VAT fraud/evasion, including but not limited to phony VAT invoices fraud and export VAT refund fraud. China has been planning to promulgate a VAT law, which entails a through VAT reform to be conducted to merge business tax into VAT and turn the current quasi-VAT system into a real VAT system. It is imagined that after the promulgation of the Chinese VAT Law and the merger of business tax into VAT, VAT evasion in China would be significantly increased due to the greater coverage/base of VAT. Hence, it would be more critical than ever for China as to how to prevent VAT evasion. Since the EU VAT system would be more comparable to the Chinese VAT system after the merger of business tax into VAT, it is constructive to research what lessons China can learn from Europe to prevent VAT evasion and minimize the VAT gap after the Chinese VAT system is turned into a real VAT system following the promulgation of the Chinese VAT Law, supposedly combining VAT and business tax currently in existence in China. Quite a few propositions with regard to the preventing of VAT evasion based on the European experience are elaborated on in this paper. These propositions are VAT grouping, exemption on purchases for exportation, E-Invoicing method, schemes for SME (exemption scheme, cash accounting scheme, and equalization tax scheme), reverse charge mechanism, horizontal supervision approach, joint and several liability. (Less)
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author
Fang, Wenxin LU
supervisor
organization
course
HARM53 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
VAT, Tax Law
language
English
id
1975782
date added to LUP
2011-06-29 14:16:33
date last changed
2011-06-29 14:16:33
@misc{1975782,
  abstract     = {VAT was first introduced in China in 1979 as an experiment, and was officially imposed in 1984. Since then VAT has been contributing a substantial portion to tax revenue of the state. China, like any other countries in the world, has been facing enormous VAT fraud/evasion, including but not limited to phony VAT invoices fraud and export VAT refund fraud. China has been planning to promulgate a VAT law, which entails a through VAT reform to be conducted to merge business tax into VAT and turn the current quasi-VAT system into a real VAT system. It is imagined that after the promulgation of the Chinese VAT Law and the merger of business tax into VAT, VAT evasion in China would be significantly increased due to the greater coverage/base of VAT. Hence, it would be more critical than ever for China as to how to prevent VAT evasion. Since the EU VAT system would be more comparable to the Chinese VAT system after the merger of business tax into VAT, it is constructive to research what lessons China can learn from Europe to prevent VAT evasion and minimize the VAT gap after the Chinese VAT system is turned into a real VAT system following the promulgation of the Chinese VAT Law, supposedly combining VAT and business tax currently in existence in China. Quite a few propositions with regard to the preventing of VAT evasion based on the European experience are elaborated on in this paper. These propositions are VAT grouping, exemption on purchases for exportation, E-Invoicing method, schemes for SME (exemption scheme, cash accounting scheme, and equalization tax scheme), reverse charge mechanism, horizontal supervision approach, joint and several liability.},
  author       = {Fang, Wenxin},
  keyword      = {VAT,Tax Law},
  language     = {eng},
  note         = {Student Paper},
  title        = {Preventing VAT Evasion in China: Lessons from Europe},
  year         = {2011},
}