Tax Evasion through Trade Intermediation: Evidence from Chinese Exporters
نویسندگان
چکیده
Many production firms use intermediary trading firms to export indirectly. This paper investigates the tax evasion motive through indirect trade, using Chinese export data at transaction level. We provide strong evidence that, under the partial export VAT rebate policy of China, production firms can effectively evade value-added taxes (VAT) by under-reporting their selling prices to domestic intermediary trading firms, especially when they sell differentiated products. The benefit of such an evasion can be as high as 17% of the under-reported value. This tax evasion motive is estimated to have an economically comparable and often larger effect on trade intermediation compared to factors examined in other studies for Chinese exporters. Even for a moderate level of under-reporting, the revenue loss is close to one billion U.S. dollars. We also find that such under-reporting behavior through domestic intermediaries may be associated with cross-border evasion through under-reporting export values to foreign partners. In addition, our result indicates that the evasion motive is stronger for larger transactions. Acknowledgement: We thank Carlos Ramirez, Mark Rider and the participants at the International and Development Economics Workshop at the Federal Reserve Atlanta,the North America Chinese Economists Society Meetings at Purdue University,and China Meeting of Econometric Society at Xiamen University for comments and suggestions. † Xuepeng Liu, Associate Professor of Economics, Department of Economics & Finance, Coles College of Business, Kennesaw State University (email: xliu6@kennesaw.edu). †† Huimin Shi (corresponding author), Assistant Professor of Economics, School of Economics, Renmin University of China (email: huiminshi@ruc.edu.cn). ξ Michael Ferrantino, Lead Economist, International Trade Department, the World Bank (email: mferrantino@worldbank.org). Disclaimer: The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
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