SHANGHAI police have busted a gang involved in an 1.1 billion yuan (US$180 million) value- added-tax (VAT) invoice scam and held 13 people.
This is the second major success for city police uncovering VAT rackets in recent weeks.
Earlier in August, officers broke up a VAT scam operation worth an estimated 4.4 billion yuan, with 20 people held.
Police said the recent operation was uncovered after a man, surnamed Fan, was discovered to be setting up and buying shell companies in Shanghai on a large scale.
These were used to issue false VAT invoices to companies in Shanghai and elsewhere in China earlier this year.
Companies purchase false invoices to pay less tax, which seriously distorts the tax system and affects the government’s fiscal revenue, according to local tax authorities.
Fan and other suspects, who controlled 11 shell companies, issued false VAT invoices to more than 900 corporations in 26 provinces, said police.
The total sum involved was said to be around 1.1 billion yuan.
The gang charged 6 to 8 percent of the invoice value from customers, said police.
To give the impression that the shell companies were actually engaged in business, Fan got other companies to issue false VAT invoices to his companies, paying 3 to 4 percent of the invoice value, said police.
The gang was busted in August 23, said police in Jinshan District.
The Shanghai tax bureau said false invoices have become a serious problem, with unscrupulous companies taking advantage of a VAT reform pilot scheme running in the city.
Last year, the program replaced business tax with VAT for transport companies and some service providers.
The VAT system was considered fairer as the tax was levied only on revenue created by a company.
Under the previous scheme, tax was levied on a business’s gross revenue.
VAT invoices allow companies to claim VAT credits, leading to reduced tax, officials said.