Still reeling from a multi-billion dollar smuggling scandal, China is digging up evidence of massive fraud involving export tax rebates that could add up to the biggest corruption case of the communist era.
Beijing has yet to reveal the extent of the fraud but customs and tax officials say it could be at least 50 billion yuan (US$6 billion), on a par with a huge smuggling racket in the eastern port of Xiamen that has implicated top national officials.
A special Cabinet team was investigating the fraud in 11 provinces and autonomous regions, focusing on Shanghai and the southern province of Guangdong, the officials said yesterday.
"A series of cases of export tax rebate fraud are under investigation which may involve 50 billion yuan," an official from the Shanghai Customs Office said.
Rampant tax fraud is the latest focus of Beijing's efforts to root out endemic official corruption, expected to be a hot topic at the two-week annual session of the National People's Congress (NPC), China's parliament, which opens on Monday.
China emphasized its anti-corruption drive this week ahead of the NPC session by putting former deputy national police chief Li Jizhou (李紀周) on trial for taking bribes from smugglers.
Li is likely to face the death penalty for his role in the Xiamen scandal in which 18 people have already been sentenced to die, and another case in the Guangdong port of Shantou -- a hotbed of organized crime at the heart of the export rebate fraud probe.
China's export tax rebates, first introduced in 1985, are designed to encourage exports by allowing firms to reclaim some of a 17 percent value-added tax levied on the production side.
The current rebate rate is about 15 percent.
But many Chinese firms claim export rebates by producing fake tax receipts, export orders and customs papers. Having claimed the rebate, goods are often sold on the domestic market.
"This is quite a common practice," said one former executive of a Chinese tobacco firm who asked not to be identified.
"You simply sort out the export papers and then sell the stuff on the domestic market. It's money for nothing."
Freight industry sources say they have been shipping empty containers between Guangdong and neighboring Hong Kong to get the necessary export papers.
Authorities stumbled on the fraud when they were hit by a massive increase in export tax rebate claims last year after raising rebate rates.
According to the most recent official figures available, export tax rebates leapt 95 percent year on year to a record 71 billion yuan in the first nine months of last year.
In Guangdong alone, which accounts for 37 percent of China's exports, rebates soared 185 percent to 8.5 billion yuan in the first half of 2000, according to state media.
"The Chinese government has found it difficult to honor the tax refunds for all these exporters, so it seems to them that there must be some fraud," said Matthew Wong, a partner at accountancy PricewaterhouseCoopers in Shanghai.
Premier Zhu Rongji (珠鎔基) has said export rebate fraud is an "outstanding social and economic problem beside smuggling and foreign exchange fraud" and described the latest crackdown as an "urgent economic struggle."
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