China’s Tax Crackdown on Old Accounts Fuels Anxiety Among Businesses

A renewed wave of reports about tax investigations in China, including the pursuit of historic tax records, has fueled anxiety among business owners already struggling with weak economic conditions.

A case involving three fruit export companies in Shenzhen, China, has recently resurfaced online.

According to state-owned Chinese media Shenzhen News, citing the city’s tax authorities, the companies were ordered to repay export tax rebates and pay penalties totaling 12.3 million yuan ($1.83 million).

They were also barred from applying for export tax rebates for three years.

Investigators found discrepancies among the companies’ export declarations, invoices, and payment records, according to the news outlet.

Export Cases

Tax authorities said the three Shenzhen companies had declared 527 million yuan ($79 million) in fruit export revenue, while actual foreign-exchange receipts amounted to less than 40 percent of that figure.

The companies had declared costs of nearly 500 million yuan ($74.5 million) and obtained input invoices totaling about 200 million yuan ($30 million), according to the authorities.

Investigators also found that some of the companies’ upstream invoice issuers overlapped and that portions of the funds were transferred through multiple accounts before being returned to the personal accounts of people associated with the firms.

The discrepancies among export declarations, invoices, and payment records became key clues in the investigation, according to the tax authorities.

Several China-based individuals spoke to The Epoch Times about the issue on condition of anonymity out of fear of reprisal.

A former fruit trader in Guangdong Province told The Epoch Times that the nature of the fruit business can make payment records difficult to match neatly with shipments.

“Fruit is prone to rot, and you often have to race against time. Even a slight delay can result in losses,” he said.

“Now it takes two or three months for the money to arrive. When I exported fruit, sometimes the goods went first, and the money arrived later. Sometimes I ask another company to collect the payment.”

The former fruit trader also questioned how companies could be expected to produce consistent documentation years after transactions had taken place.

The reports have contributed to concerns among small-business owners that past transactions could expose them to unexpected liabilities even years later.

A businessman surnamed Hua in Xi’an, China, told The Epoch Times that some businesses in his area had closed because of tax investigations.

“Many shops and companies here have closed. The Communist Party is now desperate for money,” Hua said.

“The urban management authorities impose fines, and the tax bureau investigates taxes. If they find nothing wrong with last year’s accounts, they investigate the year before. It makes it impossible for people to keep doing business.”

Concerns Over Local Fiscal Pressure

A Guangzhou-based corporate taxation and financial affairs expert, surnamed Wang, told The Epoch Times that businesses’ central concern is not simply whether tax authorities were legally entitled to review historical records, but how enforcement is conducted.

“From a tax and finance perspective, what businesses fear most is excessive enforcement by local governments under fiscal pressure,” Wang said.

He said that in some areas, a decline in income from land sales meant enforcement agencies had effectively turned revenue targets into performance targets.

“At a time when businesses are generally facing a survival crisis, they [are] conducting sweeping, retrospective, and selective enforcement to fill fiscal holes,” he said.

Wang said growing numbers of Chinese people had used the internet to express dissatisfaction with what they viewed as selective tax enforcement.

“If tax authorities only focus on digging deeply into old accounts and push the cost of compliance beyond what businesses can bear, the ultimate result will be ‘draining the pond to catch the fish,’” he said.

Ye Zilong contributed to this report.