Ending the "Buying export orders" to evade taxes - Chinese steel faces a major crisis

In a move described by experts as a “historic turning point,” China’s top five regulatory agencies—the State Administration of Taxation, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, and the General Administration of Market Supervision—joined forces on the evening of March 28, officially ending an era of legal loopholes in the steel industry. The “Notice on Issues Related to Optimizing Services and Management Standards for Domestic Taxable Export Goods” is not just an ordinary administrative document, but is essentially a declaration of war against the “ghost export” model—a sophisticated trick that turns a simple tool into a money laundering and tax evasion tool.

The “Buying Export Orders” Problem

The notice was established to address previous loopholes in tax-evading steel exports under the form of “buying export orders.” Since 2021, when China abolished the export tax refund policy for all types of steel, businesses are no longer required to provide invoices from suppliers or export documents to get tax refunds. Moreover, foreign customers do not require invoices from exporting businesses. This creates a “loophole” for domestic businesses, allowing them to sell a number of “non-export” invoices to other businesses just to deduct VAT without actually purchasing the goods.

The consequences of this model are:

Exporting businesses make a profit from selling invoices.

Domestic businesses illegally deduct VAT.

Foreign customers buy goods at low prices.

The State suffers serious losses in tax revenue

To avoid the risk of being held accountable later, many enterprises taking advantage of this form have quickly established foreign trade companies, conducted export transactions, and then dissolved them immediately after completing the procedures, causing these "ghost" companies to disappear without a trace.

Severe Impact on the Steel Industry and Export Image

The existence of "buying export orders" not only benefits a number of domestic and foreign enterprises but also seriously damages China's steel export image. In addition, this behavior creates conditions for other countries to conduct investigations and initiate anti-dumping measures against Chinese steel, leading to many negative consequences in the international arena.

Key Provisions of the Notice

The notice specifies two important provisions to prevent the practice of “buying export applications”:

Article 4:
Before declaring the export of taxable goods at Customs, taxpayers must complete the confirmation of registration information at the tax authority via the electronic tax system or directly at the tax office. In case the confirmation has not been completed, or the registration is cancelled, the business is not operating normally, the contact is lost or there is an abnormality in the tax, the enterprise is required to resolve these issues before proceeding with customs procedures.

Article 5:
Before submitting an application for dissolution to the market management agency, the enterprise exporting taxable goods must complete the tax registration cancellation procedure at the tax authority and present a certificate of completion of tax obligations when submitting the dissolution application.

Conclusion

With the new regulations, the authorities can more closely monitor export transactions, minimizing loopholes for “ghost” enterprises to exploit to evade taxes through the form of “buying export orders”. For the steel industry – the most affected product – this policy almost marks the end of the long-standing form of tax evasion in exports. This is considered a strong signal showing the state’s determination to protect tax revenue and the reputation of the export industry.

(Mysteel Newspaper)