Tax Non-Compliance of the Private Businesses in Southeast China


Student thesis: Doctoral Thesis

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Award date19 Jan 2018


How do we explain the widespread tax evasion occurring in China? What are the motivations, concerns, and opportunities that have shaped the behaviour patterns of taxpayers? Drawing on the ethnography of 65 private businesses in the shoe industry and other industries in southeast China, this thesis provides empirical evidence to aid an understanding of local taxpaying practices, as well as a conceptual framework of compliance more generally. I argue that both opportunities to evade tax and social norms to comply work together in shaping tax compliance. A two-by-two matrix helps us to understand the following types of behaviour: aggressive evasion, obliged compliance, strategic compliance, and voluntary compliance. This framework explains why VAT (value-added tax) fraud is widespread in China, but voluntary compliance is rare.

This study also separately examines the role of two dimensions. On the one hand, the divergence of structural opportunities to evade tax results from the dynamics between social and institutional opportunities. One group of taxpayers had high levels of opportunities to evade tax due to two strokes of luck (i.e., their social and institutional opportunities to evade tax were both high), while the other group’s social and institutional opportunities to evade tax were both low. On the other hand, procedural norms appeared to play only a small role in enhancing tax compliance in present-day China; instead, substantive norms, that is, individual, vertical, horizontal, and exchange norms, are important in understanding why the majority of small and medium-sized businesses are unwilling to pay taxes.

A useful theoretical framework has to survive application beyond its original context. The typology of my framework is not limited to this case study; it can be broadly applied to understanding (non) compliance in other jurisdictions and regulatory fields. A two-pronged regulatory strategy, which suggests that only when social norms and the opportunity to evade tax are improved together can the overall compliance level be substantially enhanced, is proposed to improve compliance in both China and other countries.