Tax Evasion Techniques Of China's Software Importers Cost Government Billions

Mary Swire, Tax-news.com, Hong Kong

16 March 2001

It has been estimated that China loses around 5.2 billion yuan (HK$4.78 billion) a year through computer software imports as companies use Internet-based transactions that make it difficult for the State's tax officials to track down substantial revenues.

This is according to the state-owned news service, Guangming Daily, which reported earlier this week that each year foreign-funded companies import software into China worth at least 20 billion yuan. In addition to 17 per cent VAT the state also imposes a 9 per cent tax on these imports but it has realised that the international software companies have allowed their China-based subsidiaries to upgrade their software via the Internet instead of physically importing it and thus they get away with the import taxes. Consequently, said tax officials, there is a lack of evidence which makes it difficult to trace the lost taxes. The Guangming Daily estimated that around 36,000 foreign companies have subsidiaries in China.

Last month we reported that the Chinese government said the taxation of e-commerce in China was inevitable and will be treated in the same way as traditional physical business but it was forced to admit that the complex nature of such a controversial measure has thrown some difficult obstacles in its path. Chinese officials charged with working on the e-commerce tax proposals confirmed that they are unable to even guess when the tax would be implemented. Li Xinyuan, spokesperson for the State Administration of Taxation, said: 'We have no timetable yet for when we can impose the tax. We are facing many problems and we need to work on them.' The government is reluctant to reveal any plans agreed so far and refuses to speculate how high the tax will be.

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