China's two-year-old audit administration has uncovered fraud, waste and tax evasion costing the country more than $1.6 billion, according to the government-run China Daily newspaper.
Auditor General Lu Peijian told the newspaper in an interview published on its front page today that his office had checked the accounts of more than 24,000 units and enterprises across the country and discovered numerous cases of fraud and errors in accounting.
China long has gone without a systematic approach to taxation. But with the process of economic modernization and decentralization, the state is more dependent on taxes for its income and less dependent on profits delivered by state enterprises. In the past, these profits were not taxed but were turned over to the state in their entirety.
Freed from government controls, these enterprises in many cases have become responsible for managing their own profits and losses.
The new national auditing office is still in its infancy. But it became evident earlier this year that tax evasion was widespread and in some cases involved not only individuals but also whole enterprises and provincial administrative units.
Auditor General Lu cited a case of fraud in a county in Shanxi Province in northern China. The county reported a deficit of 940,000 yuan -- more than $324,000 -- in 1983. But an audit revealed that the county was "juggling the figures" to hide a surplus of about $120,700.
China's fiscal problems became increasingly acute toward the end of last year. Indiscriminate spending combined with uncontrolled bank lending, a sharp drop in foreign exchange reserves and an unrealistically rapid industrial growth rate led the country's leaders last spring to start tightening controls. Top government officials called for increased taxation.
It quickly became apparent that one of the problems was not just enterprises that were evading taxes but also government officials. Finance Minister Wang Bingqian warned in his budget speech March 28 that they should "refrain from overstepping their authority by arbitrarily reducing" or even avoiding altogether the taxes owed.
Another problem has been the rapid expansion of taxable units, which has accompanied economic modernization and expansion. According to a report issued by the official New China News Agency last month, taxable units in the country rose from 1.62 million in 1978 to 7.2 million today. These include everything from big state enterprises to small individual businesses.
Among peddlers and owners of small businesses, tax collectors are distinctly unpopular. The Hong Kong-based China News Analysis, a biweekly bulletin, reported in 1982 that beatings of tax collectors were a fairly frequent occurrence. It cited Chinese press reports showing that there had been many instances of brutality against tax collectors in Shanghai.
In Guizhou Province, after one such beating, a tax collector had to spend 40 days in the hospital, one report said. In another case, the head of a tax collection office who had gone to a market to collect taxes for animal slaughter was beaten severely. Beating a tax collector is considered a crime, with a prison sentence required. But in the case in question, nothing happened, according to China News Analysis.
Last month, in the course of a national meeting on taxation, Jin Xin, director of the General Taxation Bureau, announced a national campaign against tax evasion. Jin said the campaign was part of a drive to collect an extra $4.1 billion.
After the founding of the People's Republic in 1949, China attempted to maintain an annual balance between revenues and expenditures, with a slight surplus. But this could not be continued once structural changes were introduced. They included higher prices paid to farmers for their products and permission for state enterprises to retain a significant part of their profits.
In 1979, the country began to experience budget deficits. They would be considered small by western standards but alarmed some fiscally conservative Chinese officials. The current $1.03 billion annual deficit is only 3 percent of the country's revenue.
In the Chinese system, taxes traditionally have been used as a tool of the state to make enterprises conform to policy.
In the early years, taxation was used selectively to force private enterprises out of existence. In more recent times, taxation has been a matter of bargaining between government authorities and enterprises. Even more recently, there has been an attempt to use it as a method of generating incentives.
But modern accounting has not been one of China's strengths. For many years, only a small percentage of tax filings were audited.
The auditor general said the government planned to increase the number of tax auditors by almost 80 percent during the next three years, adding 20,000 new recruits to the 26,000 now working in nearly 3,000 bureaus. He said auditors would concentrate on countering fraud and the exploitation of loopholes.
In addition, the government has had to recruit more than 80,000 new Ministry of Finance employes to implement the new tax system, with thousands of them stationed in factories to monitor the taxpayers.
The new system is designed in part to provide enterprises with incentives to grow, pressing badly managed companies but allowing productive ones to retain profits.
Auditor General Lu said Peking is increasing its contacts with foreign countries with the aim of drawing on their experiences.