Recently, a Chinese manufacturer from the city of Mianyang, Sichuan, was discovered to have stolen millions in value-added tax rebates through a fraudulent scheme. Furthermore, local media uncovered a chain of businesses associated with similar schemes, indicating a total of about $70 million in lost revenue for the local governments.
Value-added tax (VAT), in simple terms, is a tax on the value added to a good or service after it completes each step of the manufacturing process. China has a value-added tax system for its commodities and services that the United States doesn’t have. It also has tax rebates on exported goods or services to avoid double taxation upon entering other countries.
However, some manufacturing companies, including Sichuan Guojinbao Industry Co., were able to make millions by filing fraudulent VAT invoices to obtain export rebates.
In an article titled, “The ‘Secret’ of the Crazy Gold,” published by local newspaper Chengdu Economic Daily on May 12, journalist Tang detailed the sophisticated process Sichuan Guojinbao used to commit the VAT fraud.
First, Sichuan Guojinbao created a VAT invoice using receipts of some gold it purchased earlier. Then, it immediately and anonymously sold all of the purchased gold at a loss to recover a portion of the cost. The VAT invoice was then used to request export rebates, by claiming that all of the purchased gold was used to manufacture the goods.
The company then exported all of the manufactured goods to a retailer in Hong Kong, owned by the same fraudster, and then filed for an export rebate with the local tax department.
Furthermore, according to the article, investigators uncovered a $70 million fraud scheme in connection with Sichuan Guojinbao’s case. In particular, an affiliate at the Shanghai Gold Exchange was able to profit by issuing and selling false VAT invoices to over 100 businesses. These invoices, which were then used for scam export rebates, were based on day-to-day physical gold transactions where no receipts had been recorded
In an interview with The Epoch Times, Zhuge Yangming, a China affairs commentator, believes that a lack of traditional virtues among the Chinese people is why fraudulent activities have gotten more sophisticated and common in China.
“China used to be the land of courtesy and etiquette in ancient times, but the Chinese Communist Party’s decades of rulings have pushed the Chinese people toward monetary emphasis and away from traditional virtues,” Zhuge said. “People would do anything for money in an environment where the monetary value has the utmost importance.”
