As response to the plan of the state council to build social credit system during 2014-2020, for tax credit system building, tax authority issued a provisional tax credit administration measures in 2014 and a series of documents during the following years to guide and define the implementation.
In this article, we would like to briefly introduce stipulations of tax regulations on tax credit administration.
Tax credit administration refers to a series of administration processes to be conducted by tax authority with respect of relevant tax information of tax payers, including information gathering, credit assessment, confirmation with tax payers, assessment result disclosure, usage of the assessment result, etc..
Tax credit administration is applicable to the enterprise, sole proprietors and individual partnership enterprise which have made tax registration and can independently handle accounting matters and the tax levy is based on actual financial statements.
Tax credit information includes historical credit information, internal and external tax information. Historical information refers to basic information and assessment on tax payment credit record of prior years as well as assessment on credit record made by the relevant authorities. Internal information refers to regular index information such as tax filing, tax payment, invoice and ledger, and irregular information such as tax inspection. External information includes external reference information which is annual assessment made by relevant authorities such as quality inspection, industry and commerce, environment protection, banking and custom and external assessment information from relevant authorities which may affect tax credit assessment.
Information gathering
Tax relevant information normally is gathered from the following channels:
| Information | Channel for information gathering |
| Historical information | Tax administration system and State unified credit information platform |
| Internal information | Tax administration system |
| External information | Tax administration system, State unified credit information platform, website of relevant government authorities, news media or intermediary entities. |
Assessment
Assessment is made by two ways: annual ranking based on scores gained by tax payers and direct ranking. Direct ranking is normally used for serious credit erosion behaviors. There are five grades from the highest A to the lowest D.
| Grade | Scores |
| A | >=90 |
| B | >=70; <90 |
| M | For enterprise which is newly set up during the current year and has no operation revenue during the year and the assessment scores are over 70. |
| C | >=40; <70 |
| D | <40 or using direct ranking method |
Based on information gathered, tax authority will make assessment by giving scores on about 100 indexes which cover behaviors for four areas including credit awareness, compliance ability, actual compliance result and faith broken.
As mentioned above, in doing tax assessment, other than normal taxation matters such as tax filing and payment, credit information from other government authorities will also be reviewed as external information. This means that regulation compliance situation under other government supervision authorities may affect the tax credit assessment.
For example, according to tax authority website, if the tax payer is included in black list by quality inspection authority, the information will be shared by quality inspection authority with tax authority and will be included in tax assessment information. The authority website explains that although at present, in doing tax assessment, this kind of information will only be noted and not reduce the tax assessment score, but with the strengthening of unified punishment, tax authority has reached unified punishment cooperation memo, stricter monitoring measure will be arranged for tax payer which is included in black list.
Confirmation
Tax authority decides the grade for taxation behaviors of last year in April every year, and will input the ranking result in tax system for tax payers’ self-checking. If tax payer has disagreement on the ranking, tax payer can apply for a review through electronic tax bureau or directly with the tax authority which decides the grade. Tax authority shall complete the review within 15 working days from the acceptance of the application.
For 19 kinds of regulation disobeying behaviors, of which, the scenarios is trivial and no serious harm is caused, after making correcting within the required period and satisfying all conditions, the tax payer can apply with tax authority to review the credit assessment. These behaviors include 15 taxation matters such as tax filing, tax payment or filing of materials which are not completed in time, and 4 matters which shall be graded 4 directly.
Disclosure
For public disclosure, tax authority applies different ways for different grades.
- For grade A, the name of tax payer will be disclosed actively.
- For B, C, D grade tax payers, the publicity will be based on the need of social credit information system building as well as satisfaction of terms of memo or agreement for credit information sharing reached with other relevant entities.
- The serious tax illegal cases will publicly disclosed timely or occasionally.
The usage of the evaluation result
The principle of tax authority for using the assessment result is to award the good behavior and punish the bad behavior. In other words, the tax payers with different grades will be treated differently with respect of tax service and the way of supervision.
Awarding treatments will be implemented for A grade tax payers. For example,
- The name of tax payer will be publicly disclosed,
- The general tax payers can be given 3-month usage quantity VAT invoice at one time, and the adjustment on the invoice usage quantity can be processed from time to time.
- For tax payers who is graded A for successive 3 years, green channel or designated tax officers will be arranged for processing taxation matters.
For B grade tax payers, tax authority will conduct normal administration and in view of the grade changing trend, selectively implement the awarding measures designed for A grade tax payers. For C grade, the measure is to strictly manage and selectively implement the publishing measures designed for D grade.
D grade tax payers may face punishment treatments. For example,
- The name of tax payers will be publicly disclosed. The other tax payers controlled by the direct responsible person of the tax payers who has already been graded D will be directly graded D.
- The review on export tax refund will be strengthened.
- Tax payers will be included in list of key entities for supervising, for which, the frequency of tax inspection will be increased and punishment above the lowest standard will be applied for the law disobeying behaviors.
- The assessment result will be shared with other government authorities and restrict control or prohibition on financing, import and export, government purchase, project tender, etc. will be recommended.
From the above, obviously, poor assessment will bring negative impact to operation and business development of the tax payers. After all, enterprise with poor credit mark will not be welcomed everywhere. Therefore, it is extremely important to pay attention to comply with law and regulation in all areas when doing business and managing enterprise.
List of applicable tax regulations:
- Notice of Plan on building social credit system by State Council (2014—2020) Guofa(2014)21
- The administration on tax credit (State Tax Bureau Announcement (2014) No.40)
- The announcement of clarification of certain definition in implementing rules of administration of tax credit (State Tax Bureau Announcement (2015) No.85)
- Answering questions about tax credit by WeChat official account of Beijing Chaoyang Tax Authority
- The announcement on rehab of tax credit by State Tax Bureau (State Tax Bureau Announcement 2019 No.37)
