Smart Taxation & Smart Supervision in the Era of “Big Data”russonxiao
The Golden Tax Project consists of 1 network and 4 sub-systems.
- One network refers to
- the four-level computer network of the State Administration of Taxation (SAT) and the provincial, prefectural and county state taxation bureaus;
- the four sub-systems refer to
- the VAT anti-counterfeit tax-control invoicing sub-system,
- the anti-counterfeit tax-control authentication sub-system,
- the VAT audit sub-system and
- The invoice co-inspection sub-system.
The Golden Tax Project is in fact a system, which makes use of the computer network covering the national taxation authorities, to closely monitor the VAT special invoices and the VAT payment status of enterprises.
The current Golden Tax Phase III has achieved the merger and unification of national tax and local tax data, and its role is to fully monitor all business processes of the tax system.
Golden Tax Phase IV, which is expected to go live in August 2021, adds the following upgrades to Golden Tax III:
– Increased Non-tax business and social security control, which is the main concern for everyone. This is now under the management of the Tax Department.
– Increased information networking with the People’s Bank for stricter financial control.
– Increased control of the identity and credit of the people involved in the business.
– Cloud-based services and intelligent tax preparation for the whole process.
- Expected Impact
The new tax collection management system will make full use of latest generation of information technology such as big data and artificial intelligence, thus realizing smart taxation and smart supervision.
The first impact, about which everyone is concerned, is that sharing data across various departments into a big data pool enables to paint a nationwide “data portrait” of every market entity, of their entire business and processes. It can even be said that in the future, every enterprise will be transparent in front of the tax authorities.
The second impact is improved accuracy, which means that as more data becomes available, the more accurate the picture becomes, and the tax-related risks become more apparent.
- Effects on Tax Inspection
- Corporate invoicing issues
Enterprises should pay extra attention to the “three streams of consistency” in invoicing, which are, the unification of capital flow, the invoice flow and the contract flow. Some add a fourth stream: the flow of goods. Once Golden Tax Phase IV is launched, the inventory data of enterprises will become more transparent. This adds pressure on enterprises to ensure tighter inventory management, better monitoring of incoming goods, sales and stock, recount inventory regularly, and improve reconciliation between the digital accounts and the reality, so as to avoid inconsistency between the accounts and the reality of their inventory.
The system improves identification of enterprises that “take shortcuts” in their operations. These illegal practices, when caught, will lead to fines and enterprise will have to pay back due taxes. The relevant parties in the enterprise will also be held criminally liable and prosecuted.
- Tax rate anomalies
After the system upgrade, the level and changes of VAT and income tax liabilities for each industry will be recorded in more details in the local tax system. The system will be more sensitive to the fluctuating percentage of tax rates of enterprises. The tax authorities will assess the tax situation of enterprises and investigate the reasons for such fluctuations.
- Zero VAT return
For non-start-up businesses that are already operating normally, there is a significant risk of prolonged zero filing. If the prolonged zero filing period is as long as six months, the tax authorities may become concerned and investigate whether the business is hiding income.
- Corporate social security contributions
Since November 1, 2020, many localities have been implementing “social security into taxation”. With the big data network across various departments, every move of enterprises has been included in the supervision system.
With the launch of Golden Tax Phase IV, both tax and non-tax related business data such as industry, commerce, social security and so on are unified in the system, so the probationary period without social security, social security dependency or payment on behalf of social security will not be feasible anymore.
- Fraudulent account holders
With the online verification system for enterprise information and the upcoming Golden Tax IV, banks, non-bank payment institutions and other participating institutions can verify important information such as: the real names of the relevant personnel, enterprise mobile phone, the enterprise’s tax status and the enterprise’s registration information, all which will verify the authenticity of the enterprise in a multi-dimensional manner, qualify the enterprise’s operation status and identify whether the enterprise is qualified to open an account.
- How can companies respond?
Enterprises must pay attention to external tax-related matters, keep abreast of and familiarize themselves with the various accounting regulations, guidelines and policies formulated by the state, strictly implement and comply with the economic law, accounting law, securities law, tax law, accounting standards and financial general principles and other relevant legal systems, and strengthen their legal awareness.
Be cautious with every tax declaration period, declare tax on time, no matter whether you recruit your own accountant to take charge of your company’s finances or leave it to a third-party company to do the accounting, you should comply with the national system for compliance and reduce risks. In addition, the future regulation will be increasingly strict, so the more compliant enterprises, the less restricted the development.
If you have any questions about this topic, please do not hesitate to contact our team for more information.