Tax Evasion through Trade Intermediation

Liu, Xuepeng; Shi, Huimin; Ferrantino, Michael

Tax Evasion through Trade Intermediation | Evidence from Chinese Exporters

2015

Liu, Xuepeng | Shi, Huimin | Ferrantino, Michael

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 Chinas 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.

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AGROVOC Keywords

accounting agriculture barter budget consumers contracts credit development economics domestic markets dumping economics elasticity equipment equity expenditure exports finance fixed costs globalization growth rate incentives income tax inputs instrument international bank international trade inventories investment liabilities liquidity markets microstructure ownership prices pricing product quality production products property public finance purchasing retail sales surplus tariffs taxation taxes trade trade liberalization value added welfare wto

Bibliographic information

Publisher

World Bank, Washington, DC

Other Subjects

Market microstructure; Price; Exporter; Contract; Tax benefit; International economics; Transaction; Tax rate; Small business; Wholesalers; Return; Exchange; Finished products; Market; Rebates; Budget constraint; Check; Exporters; Product; Goods; Variables; Development policy; Export share; Ownership structure; General equilibrium analysis; Foreign market; Transactions; Market size; Comparative economics; Share; Tax incentives; Export shares; Homogeneous goods; Federal reserve; Contract enforcement; Tariff; Competitiveness; Value; Guarantees; Checks; Product differentiation; Financial crisis; Trade regimes; Profits; Developing country; Positive coefficient; Export performance; Rebate; Political economy; Interest; Middlemen; Reserve; Exchanges; Expected value; Foreign markets; Influence; Substitution; Shares; Theory; Price level; Reserve bank; Revenue; Middleman; Trade regime; Adverse selection; Issuance; Benchmark; Tax rates; Federal reserve bank; Local governments; Equilibrium analysis; Export growth; Double taxation; Economies of scope; Global economy; Trading; Default; Average price; Criteria; Guarantee; Elasticity of substitution; Dummy variable; Tax

Language

English

Type

Working Paper; Text; Working Paper

In AGRIS since: 2016-03-15

Format: AGRIS AP

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Tax Evasion through Trade Intermediation | Evidence from Chinese Exporters

2015

AGROVOC Keywords

Bibliographic information