Can Cross-border Data Flow Curb Tax Evasion in International Trade:Evidence from Customs Information Exchange
Asymmetric information has always been a challenge in taxation.Due to the possibility of taxpayers concealing or manipulating information for self-interest,tax authorities cannot obtain accurate information.Asymmetric information is particularly severe in international trade,where the true value of goods is difficult to assess accurately,leading to widespread tax evasion and fraud in import and export processes.The development of digital technologies offers a potential solution to address the issue of asymmetric information.As a crucial component of China Customs'"Smart Customs,Smart Borders and Smart Connectivity"project,customs information exchange aims to combat tax evasion by facilitating the cross-border flow of customs declaration data between countries.By cross-checking real-time import and export declaration information,customs can unveil tax evasion activities in the import process,potentially leading to a significant reduction in statistical discrepancies in international trade.This study examines the inhibitory effect of cross-border data flow on international trade tax evasion using the example of the"China-New Zealand Certificate of Origin Electronic Information Exchange System."This study first addresses the"last mile"problem of value-added tax(VAT)and raises the issue of border inefficiency in the self-enforcement mechanism of VAT.Tax authorities in a country can verify the value of goods by cross-checking VAT invoice information,but between countries,customs information is not interconnected,making it easier for goods closer to end consumers to evade import VAT.This study then analyzes how cross-border data flow resolves the border inefficiency issue of VAT and explores its heterogeneous impact on tax evasion at different stages of production.Based on trade data reported by China and New Zealand at the HS6 level from 2014 to 2021,it evaluates the effectiveness of the"China-New Zealand Certificate of Origin Electronic Information Exchange System."The findings are as follows:First,compared with nonconsumer categories,the scale of tax evasion in consumer categories is significantly larger,aligning with theoretical predictions that consumer goods imports are more likely to be subject to tax evasion.Second,after the operation of the customs information exchange system,the scale of tax evasion in consumer categories,which are more likely to be subject to tax evasion,significantly decreased.This result remains robust after controlling for various confounding factors and conducting multiple tests.Third,the mechanism analysis suggests that customs information exchange primarily suppresses tax evasion channels with underreported unit prices rather than those with underreported quantities or misclassified HS categories.Moreover,compared with homogeneous categories,heterogeneous categories with more challenging valuations are more significantly influenced by customs information exchange.The policy implications of this study are as follows.First,customs should focus on import tax evasion in consumer goods.With the development of trade liberalization,China's tariff rates have gradually decreased,making import VAT the primary tax burden for importers.Importers are less likely to underreport the value of imported raw materials and intermediate goods as the VAT on these items can be offset in subsequent stages.In contrast,the motivation for tax evasion is stronger for imported consumer goods as the import VAT is borne by the importer.Second,the government should continue to expand the country and information coverage of customs information exchange.Customs information exchange plays a prominent role in suppressing border tax evasion.The government should establish customs information exchange mechanisms with more countries,especially those with significant trade volumes,and exchange more information to curb cross-border tax evasion.Third,the government should emphasize the importance of data flow for taxation.While ensuring data security,the government should address various data silo issues by promoting(1)the data sharing between customs,tax authorities,and other government departments;(2)the data flow of government tax data between countries;and(3)the data integration between governments and platforms.
Cross-border Data FlowCustoms Information ExchangeBorder Inefficiency of VATTax EvasionCertificate of Origin
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