Consider this scenario: thankfully, you have navigated your way in a Chinese taxi to arrive at your destination. As you say goodbye to the driver, he flips up the meter sign to “vacant” and you hear that familiar clicking sound a small piece of paper is being printed out. You take your cash out and pay the driver, furthermore, why not even tip him for his good service? After checking your belongings, slam the taxi door behind you and get on with your day.
This scenario is all too familiar to expats studying, working or traveling in China. However, during this normal and even mundane process, a critical detail had been habitually overlooked – that is asking the taxi driver for the receipt, or fapiao, which is printed out after each taxi service is completed. In the following blog post, we will proceed to introduce the Chinese fapiao system and how it affects your daily lives.
The Chinese invoice system was officially established around the late 1980s-early 1990s by the government for the purpose of mandating companies to use official receipts issued by the tax authorities for each business transaction. However, the original system was swiftly taken advantage of by various parties to profit or evade taxes. For example, gangs mass produced counterfeit invoices sold in the black market. Companies used fake receipts or falsified the issuing of receipts to embezzle corporate funds and defraud employees. However, through government efforts, illegal invoice activities have been controlled and reduced. On January 1st, 2011, the Chinese government implemented a new general invoice format with simplified types of invoices, increased opportunities to win prizes via scratching the fapiao much like a lottery ticket and verifiable measures to protect customers.
In China, fapiaos go beyond the singular purpose receipts which record monetary transactions. Fapiaos are a crucial tool for the Chinese government to monitor value added tax (VAT) paid on any transactions. There are two types of fapiaos: General invoices and Special VAT invoices. In most cases, these two types of invoices can substitute each other. However, more details and their differences are presented in the table below:
DescriptionTo record payments to which special VAT invoices do not apply.Used for monetary transactions to which special VAT invoices apply.
|General Invoice||Special VAT Invoice|
– Bookkeeping copy: voucher for issuer
– Tax deduction copy: voucher for customer
– Invoice copy: bookkeeping voucher for customer
|Display||Tax-inclusive figure||Non tax figure + tax figure|
|Used by||– Business taxpayers
– VAT small scale taxpayers
– VAT general taxpayers who are not allowed to issue special VAT invoices (commercial business general tax payers in the area of consumer goods such as cigarettes, liquor, clothes, makeup and etc.
– Enterprises or individuals unable or unauthorized to issue special VAT invoices when selling commodities, providing taxable services or other taxable operational activities
Fapiaos can be computer generated upon the monetary transaction, or given as fixed prepaid amounts. Both formats are printed, distributed and administrated by tax authorities. The fixed prepaid amount fapiaos can only be purchased by registered businesses. In general, taxpayers purchased invoices from tax authorities according to their business scopes.
So how does Fapiaos affect your daily lives? Firstly, fapiaos serve as the only official valid proof of expenditure. This is crucial for company reimbursements if you are an employee and wish to obtain a rebate for your expenditures. Secondly, fapiaos serve as evidence of residency for visa purposes. Provided as supplementary documents along with your visa papers, fapiaos hold considerable weight in verifying your residency. Lastly, as a business owner, fapiaos are important for the management of company petty cash and accounts. You must ensure that the fapiaos turned in or obtained are in accordance with bookkeeping procedures and the state service or purchased product figures match the related entry in company accounting books. This of course is inseparable with annual company audits and tax filing.
One of the most often overlooked fundamentals of fapiaos is that as a customer, you must initiate the acquisition of the fapiao. In other words, it is your responsibility to ask for a fapiao upon monetary transactions because providers are not compelled by law to voluntarily give you a fapiao. On the contrary, in most cases providers will attempt to bribe their way out of giving you fapiaos via discounts or small giveaways so that they can avoid declaring the sale officially and therefore circumvent paying VAT on the transaction. As a customer, you should be fully aware of your rights. When a provider is unable to give you a valid invoice, you have the right to refuse payment on the spot and report the incident to authorities.
So returning to our classic taxi scenario, what should have been done differently? Well, firstly you could wait for the small piece of paper to be printed out. Yes, that is the fapiao you can use for reimbursement, company bookkeeping and etc. In addition, should you tip the driver? Sure, but the driver cannot issue an official fapiao so it would be an unrecorded transaction! The driver would pocket the money for himself, in accordance with your grateful intentions, and the Chinese government would be completely oblivious to this exchange. Are you going to get into trouble for this? Not likely, but there is no tipping system in the Chinese service industry precisely for the reasons that tips are untraceable.