The tax audit system in the People's Republic of China
The article examines the tax system of the People's Republic of China, in particular, the specifics of conducting tax audits. As a result of the study of the issue, the key features of the Chinese tax system that affect the development of the modern Chinese tax system, as well as the procedure for conducting a tax audit, have been identified.
Keywords: tax, tax audits, China, tax audit, tax system.
China's current tax system was established after the tax reform in 1994 to meet the needs of a socialist market economy. Since the beginning of the 21st century, the Chinese government has made a number of adjustments and improvements to the tax system, which guaranteed government revenues and contributed to the country's rapid economic growth.
The tax system in China is complex in itself for both foreign investors and individuals. It can be quite difficult to understand it from time to time. One of the main reasons for this is that the rules and tax rates in China change frequently. This is partly due to the rapidly changing business environment (and the modern tax system, which began to operate only in the 1980s), and partly due to the government's constant desire to improve the market for both domestic and foreign companies in China <1>.
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<1> Poponova N.A. Modern trends in the development of tax control: monograph. M.: Scientific consultant, 2019. p. 25.
There are two main types of taxes applied to companies in China.
1. Those related to the income/profit of the company, including corporate income tax and withholding tax.
2. Taxes related to sales/turnover, including VAT, consumer tax, stamp duty and real estate tax <2>.
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<2> Tsvetova G.V. Taxes and taxation: a textbook. Saratov: Ai Pi Er Media, 2018. p. 14.
The tax period in China begins on January 1 and ends on December 31. Enterprises must file and pay preliminary income taxes monthly or quarterly within 15 days after the end of each month or quarter, and file and pay their annual tax return within five months after the end of the tax year, together with a certificate of a registered auditor in China. Information about interested-party transactions must be submitted in the annual tax return.
For unintentional errors (for example, errors in calculations) made by a taxpayer when filing a tax return, the statute of limitations is three years and is extended to five years if the amount of unpaid tax is 100,000 yuan or more. For special tax adjustments, such as transfer pricing adjustments, adjustments in accordance with the general rules for the prevention of tax evasion, the statute of limitations is ten years. There is no statute of limitations for tax evasion, tax evasion, or embezzlement of tax payments.
There is no fixed audit cycle in China. The objects of the tax audit are selected according to certain criteria. It is clear that the Chinese tax authorities have recently stepped up their efforts to enforce and collect corporate taxes. In fact, several tax audits conducted against companies have been widely publicized in the media in order to raise general public awareness and prevent taxpayers from committing any violations of tax practices <3>.
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<3> Shelemekh N.N. Organization and methodology of tax audits. Separate issues of calculation and verification of tax and fiscal payments in the implementation of foreign economic activity of organizations: textbook. Saratov: University Education, 2020. p. 50.
Tax audits are usually conducted by independent tax investigation teams in the tax bureau at the local level or even at the provincial level. The selection is based on certain sampling criteria, such as the taxpayer's financial and tax status, sales level, industry specifics, nationality or origin of the parent company, etc. <4>.
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<4> Zhutaev A.S. Actual problems in the organization of tax control // Taxes. 2019. N 5. P. 21.
It should be noted that in 2019, the tax audit bureaus at all levels made every effort to investigate and punish violations of tax legislation and regulations, continued to deepen tax audit reforms and improve the efficiency and effectiveness of their work <5>.
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<5> Beresnev D.V. Trade and economic cooperation between Belarus and China in the context of increased protectionism in the global economy. Mn.: Belarusian Science, 2020. p. 103.
China has reached the 2020 tax revenue target planned in the budget, despite the impact of COVID-19 on taxpayers and many discounts, which prompted politicians to propose continuing cost containment and risk control measures this year. In 2021, the country's plan to reduce taxes and fees is aimed at helping market participants overcome difficulties and contribute to economic recovery.
The government's total tax revenue last year was 13.68 trillion yuan ($2.12 trillion), which is the annual target set by the budget plan. It accounted for 15.2% of the country's GDP, compared with 16.02% in 2019.
The Deputy director of the Economic Affairs Committee of the National Committee of the Chinese People's Political Consultative Conference noted that since China has entered the era of high-quality economic development, higher standards are needed to reduce the costs of enterprises. According to him, for example, the costs of environmental protection and carbon emissions control should be included in the firm's cost calculation models.
Thus, it can be said that the taxation system in China has undergone many changes since the 1980s and is likely to continue to do so. The Chinese Government continues to support the improvement of the business environment in China for both local and foreign companies. A key part of this is simplifying the tax system and reducing the overall tax burden for companies.
