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Tax avoidance through re-imports: The case of redundant trade

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  • Liu, Xuepeng

Abstract

Many countries have participated in re-imports, a type of round-trip trade originating from a country and back to the same country. China, as the largest re-importer, has imported more from itself than from the U.S. since 2005. As the first empirical study on re-imports, this paper shows that China's re-imports are at least partially driven by the imperfection of the value-added tax (VAT) rebate policy for processing trade. In principle, firms should be able to claim input VAT credits after selling their finished products in China, or receive input VAT rebates after exporting their products. Some processing firms, however, are not qualified for the credits or rebates when selling in China; hence, they may export their products to obtain rebates. Some downstream processing firms can benefit from re-importing these products duty-free as inputs because they cannot obtain the rebates when buying inputs in China even after exporting their final goods.

Suggested Citation

  • Liu, Xuepeng, 2013. "Tax avoidance through re-imports: The case of redundant trade," Journal of Development Economics, Elsevier, vol. 104(C), pages 152-164.
    • Handle: RePEc:eee:deveco:v:104:y:2013:i:c:p:152-164
    DOI: 10.1016/j.jdeveco.2013.05.007
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    References listed on IDEAS

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    1. Raymond Fisman & Shang-Jin Wei, 2004. "Tax Rates and Tax Evasion: Evidence from "Missing Imports" in China," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 471-500, April.
    2. Ferrantino, Michael J. & Liu, Xuepeng & Wang, Zhi, 2012. "Evasion behaviors of exporters and importers: Evidence from the U.S.–China trade data discrepancy," Journal of International Economics, Elsevier, vol. 86(1), pages 141-157.
    3. Kei-Mu Yi, 2010. "Can Multistage Production Explain the Home Bias in Trade?," American Economic Review, American Economic Association, vol. 100(1), pages 364-393, March.
    4. Koopman, Robert & Wang, Zhi & Wei, Shang-Jin, 2012. "Estimating domestic content in exports when processing trade is pervasive," Journal of Development Economics, Elsevier, vol. 99(1), pages 178-189.
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    Cited by:

    1. Yin-Wong Cheung & Sven Steinkamp & Frank Westermann, 2020. "A Tale of Two Surplus Countries: China and Germany," Open Economies Review, Springer, vol. 31(1), pages 131-158, February.
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    3. Gao, Yuning & Yu, Anqi & Jiang, Jiatong & Pei, Jiansuo, 2024. "Will global value chain participation reduce environmental emissions? Evidence from Chinese firm-level data," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 512-526.
    4. Bussy, Adrien, 2023. "Corporate tax evasion: Evidence from international trade," European Economic Review, Elsevier, vol. 159(C).
    5. Julien Gourdon & Stéphanie Monjon & Sandra Poncet, 2014. "Incomplete VAT rebates to exporters : how do they affect China's export performance?," Working Papers 2014-05, CEPII research center.
    6. Chen, Shawn Xiaoguang, 2017. "The effect of a fiscal squeeze on tax enforcement: Evidence from a natural experiment in China," Journal of Public Economics, Elsevier, vol. 147(C), pages 62-76.
    7. Liu, Xuepeng & Shi, Huimin & Ferrantino, Michael, 2016. "Tax evasion through trade intermediation: Evidence from Chinese exporters," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 518-535.
    8. Jon Bakija & Ivan Badinski, 2014. "Evidence on the Responsiveness of Export-Related VAT Evasion to VAT Rates in the EU," Department of Economics Working Papers 2014-06, Department of Economics, Williams College.
    9. Duan, Yuwan & Dietzenbacher, Erik & Los, Bart & Yang, Cuihong, 2021. "How much did China's emergence as “the world's factory” contribute to its national income?," China Economic Review, Elsevier, vol. 69(C).
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    More about this item

    Keywords

    Tax avoidance; Tax evasion; Re-imports; Export tax rebate; Processing trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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