I. The risks in VAT invoice
Shanghai VAT reform brings both opportunities and challenges to enterprises. When enjoying the low tax rate and deduction benefits, enterprises should be aware of new risk factors such as the billing management of VAT invoices.
Compared with general invoices, VAT invoices are more restricted in administrative penalty and incrimination. According to the criminal law and relevant provisions, forging VAT invoices that exceeding 10000 RMB or state tax 5000 RMB shall be filed prosecution and the punishment can be a life sentence. For commercial invoice, it is usually subject to tax evasion which is defined as “less tax payment”. Tax department will file a prosecution when “the amount exceeds 50000RMB and taking a share of 10% of the total taxable amount, and after the official notice from tax department the taxpayer still does respond to the noted tax amount, delaying payment and further penalty.”
II. Invoice Management that affects different pilot enterprises
In consideration of micro prospective on relationship between enterprises and tax administrations, enterprise will confront a more restrict taxation institutions, especially for their accountants. Enterprises with poor invoice management system may get exposed in front of the new positioning. Looking into the macro perspective, substitute commercial invoice with VAT invoice is promising and far-researching in fiscal system. On the other hand, more controversies, forging VAT invoice for one, will come in sight because of the pilot programs. The goal of incriminating fraud in VAT invoice is to protect state interests and tax rights in export tax rebates. It would be legitimate to distinguish VAT invoice crime and general tax evasion in further judicial interpretation.
I. The risks in VAT invoice
Currently, the Ministry of finance and SAT issued notice and regulated that since 1st
January 2012, Shanghai launched VAT reform pilot. Each tax reform starts with many issues, so does the VAT reform pilot. Meanwhile, reform could bring a good deal of services and new chances.
I. Issues in Shanghai VAT reform pilot
Whether the tax rate reduces after the reform became a hot topic. Some people thought that the tax burden of transportation industry will rise on the contrary. However, seen from the whole reform, tax reduce is obvious. Government emphasized that this reform didn’t focus merely pilot industries, but the downstream enterprise. Government wants to reduce duplicate tax collection, enlarge business and promote the development of transportation industry and modern service industry.
To relieve taxpayers’ burden, policy regulates that some industry apply the previous business tax ratio, such as 3%. Enterprises with higher tax burden could solve it through tax incentives, such as VAT refund.
II. Tax service demand
1、tax disputes resolution
VAT invoice supervision is stricter than ordinary invoice. Hence, there might be many irregular invoice using situations at the beginning of the reform, which might cause tax disputes. “Crime of falsely making out special invoices for value-added tax” cases will increase, and the condemned rules will make amendments correspondingly.
2、tax coordination across districts
Business tax paid for service could be deducted in VAT sale item. Hence, relevant department outside pilot districts will issue rules to reduce the influence of taxpayers. Due to different rules in different areas, professional coordination is demanded in across district transactions.
3、international tax planning
Due to the turnover tax for service will not display on accounts, the account revenue might reduce. Even the tax burden no change, it will reduce 5% or more. Hence, with the same profits, the profits margin will be higher, which might cause tax risks. Foreign investment enterprises should pay special attention to it.
4、high tech tax service
Precious business tax incentives will be managed in VAT system, which includes technology transfer and exploration. Some enterprises with higher tax burden needs those tax incentives to reduce the reform influence, which might bring tax service market to intermediaries.