According to Black’s Law Dictionary (a source law students love to quote), a tax is a “pecuniary burden laid upon individuals or property owners to support the government...not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority”. Enter the fapiao (发票). A fapiao is a receipt - an official receipt, that is. In China, the State Administration of Taxation is in charge of tax collection, with the Ministry of Finance as the policy mastermind in the backdrop. And the fapiao is their bid to track tax payments and deter tax evasion.
Fapiaos also double as state lottery tickets. So get your lucky charms ready.
One of the first things you notice when you buy something in China is that you pay the number on the price sticker. No [insert your desired percentage here] addition at the cash register. This is not because commercial products are not taxed, but because the prices include the value added tax (VAT). The procedure is as follows:
Step 1: The business owner purchases a fapiao printer (plus appropriate red-stamped and otherwise marked special fapiao paper) from the local tax authority. In the alternative, the business owner can print fixed amount prepaid fapiaos. In this latter case, the standard amounts are fapiaos for 20 RMB and 100 RMB. The business owner can then liberally round your purchase total to the nearest multiple of 20 and hand you your own starters kit for your fapiao collection.
Step 2: Following the letter of the law, the business issues a fapiao to the consumer for all business transactions at the time of purchase.
Step 3: Once the prepaid fapiaos have run out or -for those proud owners of fapiao printers- the official paper has been all used up, time to call up the local tax authority and respectively, either pre-pay some more taxes or report and pay taxes . Rinse and repeat.Simple. However, the pitfalls in this procedure should be evident. To start (and this is not endemic only to China), business owners will look to avoid paying VAT on the transaction. Essentially, no fapiao, no need for the business to report and pay taxes; courtesy of the government, they’ll keep the VAT amount for themselves. The onus falls on the customer. As an additional detail to Step 2 above, in the minutia of the letter of the law, all businesses are required to produce a receipt at the customer’s request at the time of purchase.
So, the authorities undertake to give customers incentives. And how better to give an incentive than to make each purchase a gamble hope for a cash windfall? Because, as I mentioned above, fapiaos are lottery tickets, complete with their own scratch-to-win box directly on the receipt. It’s ingenious, a Machiavellian turn-of-force that harnesses our self-interest and that intangible rush of hope-fueled adrenaline we get when we play the game.
And for those customers having a hard time getting their quasi-lottery ticket: if the business owner is unable to produce a valid invoice, you have your chance to play whistle-blower, refuse to pay and call the national tax authority’s hotline at 12366.
Merging back to the nature of the tax system, if the potential to win millions is not enough of an incentive to ask for that fapiao, there is also the detail that to claim business-related expenses, companies need to provide the tax authority with the original fapiaos. Thus, for any audit-related tax and expense deduction endeavours, fapiaos are mandatory.
As a closing statement, heed the following warning: make sure that if you are getting a fapiao for tax reduction, the fapiao is issued for the right type of service and made out to the correctly-spelled company name. Otherwise, though you can scratch-and-(maybe)-win all you want, but when it comes time to be reimbursed by your employer for that tai gui kao ya dinner, you’re going to be out of luck.
KEYWORDS: taxes, fapiao, lottery, Ministry of Finance, VAT