The State Administration of Taxation recently announced the "Measures for the Information Disclosure of Major Taxes and Untrustworthy Cases". These new measures aim to help the implementation of China's new tax law at a regional level; those who fail to comply with the tax law will not be able to leave China until they pay off all overdue taxes. These measures have officially come into effect since the beginning of 2019.
According to article 5, the term “significant tax violations and untrustworthy cases” as used in these measures refer to cases that meet the following criteria:
1. The taxpayer forges, alters, conceals, arbitrarily destroys the accounting book, or lists the expenditures in the book as more than they actually account for, refuses to declare or fabricates false tax returns after receiving notifications from tax authorities. The taxpayer has cheated the system by paying less than RMB 1 million of their taxable income, or paid less than 10% of the total taxable income in any year accounted for.
2. If the taxpayer didn't pay off his/her taxes or obstructs the tax authority from levying taxes by transferring or concealing properties, and the amount of the tax he or she owes is greater than RMB 100,000.
3. Defrauding the state's export tax rebate.
4. Refusing to pay taxes in a violent or threatening manner.
5. Falsely issuing VAT fapiao (invoice) or falsely issuing other fapiaos to defraud export tax rebates and decrease the taxable amount.
6. Falsifying 100 pieces of fapiaos or with a total value of more than RMB 400,000.
7. Privately printing, forging or altering fapiaos, or illegally manufacturing fapiaos.
8. Getting involved in tax evasion, fraudulent export tax rebates, anti-taxation activities, falsely issuing fapiaos, and becoming a fugitive as a result.
9. Other serious violations.
For such taxpayers above, their tax credit rating will be directly subject to a “Class D” rating. The tax authority has the right to notify immigration authorities to prevent them from leaving China.
Class D taxpayers will also face a number of punishments - such as prohibiting high-consumption behaviors, restricting their ability to work in relevant positions, or working for financial institutions.
As of now, those who owe the government over RMB 100,000 in taxes are not allowed to leave China. With the ongoing changing policies, the terms of the punishments will continue to update and, undoubtedly, tighten over time.
The Chinese government has developed a national reputation system called the Social Credit System (Chinese: 社会信用体系; pinyin: shèhuì xìnyòng tǐxì) to rate residents’ spending habits and behaviors. By 2020, it is intended to standardize their assessment and businesses' economic and social reputation, or 'credit'.
What behaviors will lead to being included on the “blacklist”?
In order to prevent the risk of capital flow under a personal account, the below transactions are considered suspicious by the State Administration of Foreign Exchange (SAFE).
1. More than five different individuals remitting foreign exchange to the same individual or institution abroad after purchasing the foreign exchange on the same day, or on consecutive days.
2. Individuals withdrawing cash in a foreign currency equivalent to ＄US 10,000 from the same foreign exchange savings account more than 5 times within 7 days.
3. The same person transfers the deposits in the foreign exchange savings account to more than 5 immediate family members.
These behaviors are normally recognized as an individual splitting up foreign exchanges for sale and purchase.
On April 8, 2018, the Education Service Center of the Ministry of Education issued a notice on fighting against the submission of fake degrees.
In order to maintain the seriousness of the degree verification process in the country, they set up a column in the Chinese Service Center for Scholarly Exchange (CSCSE) to publicize the untrustworthy behaviors in the process of applying for the verification of degrees obtained overseas.
According to the public notice, a total of 202 people in the review of the CSCSE were found submitting false, forged or invalid information materials for foreign degree verification.
At present, the CSCSE has revoked the results of the verifications held by these 202 applicants from the overseas academic degree verification system.
The CSCSE sent a notice of “overturning the revoked verification” to the applicants, and the applicants can cancel the publicly-made available information only after resubmitting the original certificate.
The CSCSE also made an announcement to show the public that 72 applicants (including foreigners and Chinese citizens) submitted fake application materials for the degree verification process.
Each person’s name is followed by a detailed record of the type of fake information that was submitted when verifying the authenticity of their degree. At first glance, the system shows dishonest behavior from 72 applicants.
There are other types of punishments for untrustworthy residents, including flight bans, exclusion from private schools, slow internet connections, exclusion from high prestige professional roles, exclusion from hotels, and their name on a public blacklist. All in all, China will do its best to ensure you comply with its laws and pay the taxes you owe.