Tax evasion through trade intermediation: evidence from Chinese exporters

Xuepeng Liu, Huimin Shi and Michael Joseph Ferrantino

No 7232, Policy Research Working Paper Series from The World Bank

Abstract: Many production firms use intermediary trading firms to export indirectly. This paper uses Chinese export data at the transaction level to investigate the tax evasion motive through indirect trade. The paper provides strong evidence that, under China's partial export value-added tax rebate policy, production firms can effectively evade value-added taxes by underreporting their selling prices to domestic intermediary trading firms, especially when they sell differentiated products. Even for a moderate level of underreporting, the revenue loss is close to one billion U.S. dollars. The paper also finds that such underreporting behavior through domestic intermediaries may be associated with cross-border evasion through underreporting export values to foreign partners. In addition, the results indicate that the evasion motive is stronger for larger transactions.

Keywords: Economic Theory&Research; Debt Markets; Trade Policy; Markets and Market Access; Emerging Markets (search for similar items in EconPapers)
Date: 2015-04-06
New Economics Papers: this item is included in nep-cna, nep-int, nep-iue and nep-tra
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Journal Article: Tax evasion through trade intermediation: Evidence from Chinese exporters (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:7232

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