Tax Avoidance and Anti-Avoidance Measures in Major Developing Economies

222 Pages·2003·11.5 MB·English

by  Phyllis Mo

Tax Avoidance and
Anti-Avoidance Measures
in Major Developing Economies
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Tax Avoidance and
Anti-Avoidance Measures
in Major Developing Economies
PHYLLIS LAI LAN MO
FOREWORD BY
TANG YUNWEI
Wes port Con
PRAEGER ' - ES
Library of Congress Cataloging-in-Publication Data
Mo, Phyllis Lai Lan, 1959-
Tax avoidance and anti-avoidance measures in major developing economies / Phyllis
Lan Mo ; foreword by Tang Yunwei.
p. cm.
Includes bibliographical references and index.
ISBN 1-56720-577-1 (alk. paper)
1. Tax administration and procedure—Developing countries. 2. Tax evasion—
Developing countries. 3. Taxation—Developing countries. I. Title.
HJ2351.7.M6 2003
336.2'06'091724—dc22 2003057993
British Library Cataloguing in Publication Data is available.
Copyright © 2003 by Phyllis Lai Lan Mo
All rights reserved. No portion of this book may be
reproduced, by any process or technique, without the
express written consent of the publisher.
Library of Congress Catalog Card Number: 2003057993
ISBN: 0-56720-577-1
First published in 2003
Praeger Publishers, 88 Post Road West, Westport, CT 06881
An imprint of Greenwood Publishing Group, Inc.
www.praeger.com
Printed in the United States of America
The paper used in this book complies with the
Permanent Paper Standard issued by the National
Information Standards Organization (Z39.48-1984).
10 9 8 7 6 5 4 3 21
Contents
Tables vii
Foreword by Tang Yunwei ix
Preface xi
1 The Nature and Emerging Significance of Tax Avoidance 1
in Developing Economies
Chapter Overview 1
General Concepts on Tax Avoidance and Evasion 2
The World Economy 4
The Level of Damages Arising from Tax Avoidance by Foreign 6
Investors in Developing Economies
Environmental Problems for Tax Avoidance in Developing 12
Economies
2 Tax Systems in Major Developing Economies 15
Chapter Overview 15
Tax System in China: Implications for Foreign Investors 19
Tax System in India: Implications for Foreign Investors 37
Tax System in Brazil: Implications for Foreign Investors 48
Tax System in Mexico: Implications for Foreign Investors 60
Summary Comparisons 71
3 Tax Avoidance and Anti-Avoidance Measures 77
Chapter Overview 77
Tax Avoidance and Anti-Avoidance Measures in China 78
VI CONTENTS
Tax Avoidance and Anti-Avoidance Measures in India 104
Tax Avoidance and Anti-Avoidance Measures in Brazil 115
Tax Avoidance and Anti-Avoidance Measures in Mexico 123
4 An Empirical Study on Tax Noncompliance in China 133
Chapter Overview 133
Prior Research on Tax Noncompliance Behavior 134
Nature of Tax Audit Adjustments 136
Environmental Factors Affecting Tax Noncompliance in China 139
Research Methodology 145
Empirical Results 148
ANOVA Results 156
Conclusion 162
5 Summary and Implications 165
The Need for a Comprehensive Understanding of Tax Avoidance 165
and Anti-Avoidance Measures in Developing Economies
Summary of Country Studies 166
Empirical Study on Tax Noncompliance in China 169
Implications of This Study 169
Appendix 1 Translated Extracts of Income Tax Law of the 173
People's Republic of China Concerning Foreign
Investment Enterprises and Foreign Enterprises
Appendix 2 Translated Extracts of Tax Administration and 181
Collection Law of the People's Republic of China
Bibliography 197
Index 205
Tables
1.1 Average Annual Percentage Growth of Real GDP 5
1.2 Value and Annual Growth of China's Foreign Trade 6
1.3 Top Ten Largest Recipients of Foreign Direct Investment 8
in the World
1.4 Import and Export by Foreign Investment Enterprises 10
in China
2.1 Comparative Tax Systems 72
3.1 Tax Revenue to GDP Ratio in China (1991-2000) 79
3.2 Tax Revenue to GDP Ratio in India (1996-2000) 104
3.3 Summary of Tax Amnesties in India 109
3.4 Tax Revenue to GDP Ratio in Brazil (1997-2001) 115
3.5 Tax Revenue to GDP Ratio in Mexico (1996-2000) 124
4.1 Nondeductible and Conditionally Deductible Expenses 137
for Calculating Taxable Income of FIEs in China
4.2 Pearson Correlation Coefficients among Independent 149
Variables
4.3 Descriptive Statistics of Tax Audit Adjustments by 150
Environmental Factors
4.4 ANOVA Results 157
4.5 Marginal Means for Statistical Significant Relationship 158
between Dependent and Independent Variables
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Foreword
Tax avoidance and anti-avoidance measures are matters of major concern for
tax authorities and corporate management. This concern is particularly seri
ous for developing countries given the rapid growth of investment in their
economies and their lack of adequate experience in dealing with the problem.
This innovative study by Professor Mo goes a long way addressing this
concern by enhancing our understanding of the tax environment and enforce
ment, including auditing in four major developing economies, namely, China,
India, Brazil, and Mexico. As far as can be determined, this is the first com
prehensive comparative study on tax avoidance in developing economies.
More specifically, this book provides a comparative analysis of the business
and tax systems in these economies, and the tax avoidance problems and anti-
avoidance measures taken by respective tax authorities. This book also pro
vides empirical evidence on tax avoidance by multinational corporations in
China as well as an empirical assessment of the impact of public policies on
tax avoidance by foreign investors.
Reading this in-depth study is the obvious and indispensable first step in
gaining appropriate knowledge of the tax avoidance and enforcement prob
lems in developing economies. Accountants, auditors, finance managers,
public policy makers, and business practitioners as well as researchers should
gain substantially from the insights provided in this book.
Tang Yunwei
Managing Partner
Ernst & Young Dahua Certified Public Accountants Co. Ltd
Shanghai, The People's Republic of China