Recently, the State Taxation Administration publicly exposed eight consumption tax evasion cases investigated and handled by local tax authorities in recent years, covering sectors such as gold, silver and jewelry, liquor, and refined oil. The total supplementary taxes and fines amounted to nearly 100 million yuan, sending a signal that the state is strengthening tax supervision over consumption tax. Based on these eight cases, this article summarizes the methods used to evade consumption tax obligations and alerts corresponding tax risks for readers’ reference.

I. Case Analysis: Methods of Evading Consumption Tax in the Eight Cases

(I) Transferring Consumption Tax-Taxable Income to Tax Preferential Regions

During the 1994 tax-sharing reform, considering the weak economic foundation and relatively backward development level of the Xizang Autonomous Region, as well as the near absence of tobacco and liquor manufacturing enterprises there, the state explicitly stipulated that, except for consumption tax collected by customs on behalf of the government, consumption tax would be temporarily exempted for manufacturing enterprises and taxable products subject to consumption tax in Xizang. It was not until 2009 that Xizang levied consumption tax on the wholesale of cigarettes, and subsequently successively imposed consumption tax on the retail of ultra-luxury passenger vehicles, production of refined oil, electronic cigarettes and other items. However, it has never levied consumption tax on taxable items such as precious jewelry and jade, high-end cosmetics, and alcoholic drinks.

In practice, some entities take advantage of Xizang’s consumption tax policies by registering shell companies in Xizang and transferring taxable consumption tax income to these Xizang-based companies to evade consumption tax obligations. In Case One, Chaozun Company adopted such a method. According to relevant consumption tax policies, consumption tax on gold and silver jewelry is levied at the retail stage, and entities and individuals engaged in the retail of gold and silver jewelry are liable for consumption tax. This means that entities directly selling gold and silver jewelry to consumers are taxpayers, while entities only engaged in wholesale of gold and silver jewelry are not taxpayers and are exempt from consumption tax.

Chaozun Company registered four shell companies in Xizang, falsely wholesaled gold and silver jewelry to these four shell companies first, and then sold the jewelry to consumers in the name of the Xizang shell companies, thereby enjoying Xizang’s policy of not levying consumption tax on gold and silver jewelry and evading consumption tax obligations. The key reason for the tax authorities to determine Chaozun Company’s consumption tax evasion was that the four Xizang companies did not conduct substantive operations in Xizang. In Case One, the business premises, employees, accounting and property ownership of the four Xizang companies were all located in Shenyang rather than Xizang. The entire sales process of gold and silver jewelry and all financial and tax processing of the Xizang companies were directly completed by Chaozun’s staff. It can therefore be concluded that the four Xizang companies were fully controlled and operated by Chaozun Company as tools to evade consumption tax obligations.

In fact, the key distinction between legally enjoying Xizang’s tax preferential policies and tax evasion lies in whether substantive operations are conducted in Xizang and whether there is a subjective intent to evade tax obligations. Establishing fixed business premises in Xizang, employing full-time staff, independently completing the entire retail business process by Xizang-based personnel, and establishing an independent and standardized accounting system constitute legitimate and compliant business operations and shall not be deemed as tax evasion.

In addition, it is worth noting that to further promote the development of a unified national market and standardize the order of the consumer market, Xizang will officially levy consumption tax on precious jewelry and jade as well as high-end cosmetics in 2026. This will fundamentally curb the practice of illegally transferring sales income to Xizang to evade consumption tax obligations.

(II) Concealing Income via Private Account Receipts

In recent years, with the continuous advancement of the "Strong Foundation Project", the continuous improvement of tax authorities’ digital collection and management capabilities, and the increasingly sound information sharing and resource interoperability mechanisms between tax authorities and banks, customs, public security and other departments, acts of concealing income through private account receipts can be accurately identified, leading to a sharp rise in the number of investigated and handled tax-related cases.

In Cases Two to Seven, the entities involved all concealed income and evaded consumption tax through various forms of private account receipts. In Cases Two, Four, Five and Six, Jingjiang Jingxiang Jewelry, Wenshang Xinfu Gold Jewelry, Xizang Kentai Trading Chengdu Branch, and Aksu Fuchen Jewelry bound personal bank accounts with third-party payment platforms and POS machines to collect payments through third-party devices and POS machines, thereby concealing sales income. In Case Three, the business accounts of four jewelry stores in Shexian were bound with the owners’ personal bank accounts, with daily business funds automatically transferred to personal accounts to hide sales income. In Case Seven, Pengcheng Distillery concealed income generated from blending purchased base liquor with packaging materials and selling the finished products through personal account receipts.

It is worth noting that evading tax obligations by deregistering business entities is not feasible. Article 16 of the Implementing Rules for the Tax Collection and Administration Law stipulates that "before going through the formalities for deregistration of tax registration, a taxpayer shall settle the tax payable, late payment surcharges and fines with the tax authorities". Article 56 of the Civil Code stipulates that "debts incurred by an individually-owned business operated by an individual shall be borne with the individual’s property". Accordingly, individually-owned businesses shall fulfill their tax obligations in accordance with the law and settle relevant taxes before deregistration. If they have evaded taxes or failed to truthfully declare and pay taxes during operation, the individual operator shall still bear joint and several liability for the underpaid taxes even if the deregistration has been completed. In Case Three, although the individually-owned businesses involved had been deregistered, the tax authorities were still able to recover underpaid taxes from the operators due to their tax evasion through private account receipts during operation.

(III) Blending Chemical Products into Refined Oil for Sale

According to China’s consumption tax regulations, gasoline is a taxable consumer good subject to a consumption tax of more than 2,100 yuan per ton, while chemical raw materials such as pentane are not within the scope of consumption tax collection and are exempt from consumption tax in the production and sales links. Since some chemical products such as pentane can be blended with other components to be used as vehicle fuel, some oil blenders purchase non-taxable chemical products to blend refined oil and conceal taxable consumption tax income by not issuing refined oil invoices.

In Case Eight, Maoming Hongjian blended high-boiling aromatic solvent chemical products with gasoline for sale to gas stations without issuing refined oil invoices, concealing the fact of producing and selling gasoline and thus evading consumption tax obligations.

In practice, to reduce the risk of tax inspection, some oil blenders blend purchased chemical products into refined oil and sell them to downstream enterprises with input chemical invoices, which then sell the products to gas stations. Under such circumstances, tax authorities usually deem downstream enterprises as having conducted name-altered sales—actually selling refined oil but issuing chemical product invoices—thereby triggering tax risks for downstream enterprises.

II. Legal Consequences: Bearing Corresponding Legal Liabilities

(I) Recovery of Taxes, Imposition of Late Payment Surcharges, and Fines for Tax Evasion

Entities and individuals producing taxable alcoholic drinks and refined oil or retailing gold and silver jewelry within China are consumption tax taxpayers and shall declare and pay consumption tax within the time limit prescribed by tax laws. Failure to pay consumption tax on time for taxable activities shall result in legal liabilities of paying back taxes and late payment surcharges in accordance with the law.

In determining tax evasion, tax authorities bear the burden of proving the taxpayer’s subjective intent to evade taxes. Acts such as concealing sales income of gold and silver jewelry and other taxable consumer goods through private account receipts constitute typical acts of not listing or understating income and filing false tax returns. Judging from normal business management and tax collection practices, sales of taxable consumer goods shall be recorded through corporate accounts and truthfully declared for tax payment. Entities receiving payments through private accounts without declaring tax in accordance with the law may be legally presumed to have subjective intent of tax evasion, meeting the constituent elements of tax evasion. In this regard, tax authorities may impose a fine of 0.5 to 5 times the unpaid or underpaid tax.

(II) Downgrading of Tax Payment Credit Rating

According to the Measures for the Administration of Tax Payment Credit, tax payment credit ratings are divided into five levels: A, B, M, C and D. Taxpayers with Grade A tax payment credit may receive VAT invoices for up to three months at one time; if they need to adjust the quantity of VAT invoices, the application can be processed immediately, and other ordinary invoices are supplied on demand. Taxpayers rated Grade A for three consecutive years may also enjoy preferential measures such as green channels or special personnel assisting in handling tax-related matters.

In contrast, taxpayers with Grade D tax payment credit shall be subject to quota and quantity restrictions on the collection of special VAT invoices, and ordinary invoices shall be supplied under strict quantity limits with the requirement to hand in (check) old ones for new ones. They shall be listed as key monitoring targets and subject to enhanced credit supervision. Meanwhile, Grade D taxpayers shall face corresponding restrictions or prohibitions in investment and financing, government procurement, project bidding, qualification examination and other fields.

If the amount of tax evaded by taxpayers in the aforementioned cases reaches more than 100,000 yuan and accounts for more than 10% of the total tax payable for all tax types, tax authorities will directly rate them as Grade D, restricting their invoice collection, business activities and market credit.

(III) Transfer to Public Security Authorities for Criminal Liability of Tax Evasion

Article 3 of the Judicial Interpretations on Tax-Related Cases by the Supreme People’s Court and the Supreme People’s Procuratorate stipulates conditions for exemption from criminal liability for tax evasion: before public security authorities file a case, taxpayers who fully pay back the taxes, late payment surcharges and accept all penalties within the time limit prescribed by tax authorities upon receipt of a tax recovery notice issued by tax authorities in accordance with the law shall be exempt from criminal liability for tax evasion.

If the amount of tax evaded by the entity involved meets the criminal filing standards and it fails to fully and timely pay taxes, late payment surcharges and fines as required by tax authorities, tax authorities shall transfer the case to public security authorities for investigation in accordance with the law. It should be noted that once a criminal case is filed by public security authorities, subsequent full payment of taxes, late payment surcharges and fines shall not preclude criminal liability.

According to the eight cases, the entities involved in the first seven cases all paid back taxes, late payment surcharges and fines, thus avoiding criminal liability for tax evasion. No information on tax payment was disclosed for the eighth case, and the relevant entity shall remain vigilant against the criminal risk of tax evasion escalating to the crime of tax evasion.

III. Future Trend: Consumption Tax as a Key Focus of Tax Supervision

Judging from the current regulatory situation, the refined oil sector has become a key focus of supervision. According to data from a press conference held by the State Taxation Administration on April 1, 2026, tax authorities inspected a total of 5,006 refined oil enterprises including gas stations in 2025, recovering 7.5 billion yuan in taxes. According to the 2026 Work Report of the Supreme People’s Procuratorate, procuratorial organs, in collaboration with the State Taxation Administration, launched a special campaign for tax supervision of refined oil retail enterprises, urging the recovery of 1.28 billion yuan in taxes through public interest litigation. The refined oil sector will continue to be a key direction of tax supervision in the future.

In addition, the April 1 press conference explicitly stated that tax supervision will be strengthened on key areas such as gold and jewelry. Combined with the typical consumption tax evasion cases publicly exposed by the State Taxation Administration this time, it is clear that supervision over consumption tax will be further intensified.

From the perspective of consumption tax reform trends, the reform direction has been gradually clarified and deployment continuously deepened. The Decision of the Third Plenary Session of the 20th Central Committee of the Communist Party of China proposed to "advance the backward shift of consumption tax collection links and steadily assign the revenue to local governments". The 15th Five-Year Plan Outline further clarified that "advance the backward shift of consumption tax collection links and steadily assign the revenue to local governments to increase local independent financial resources". The 2026 Government Work Report re-emphasized the need to "adjust and optimize the scope and tax rates of consumption tax, and advance the backward shift of collection links for some items".

This means that consumption tax is undergoing systematic reform and will change from a pure central tax to a shared tax between the central and local governments, just like value-added tax. This reform will effectively solve the problem of insufficient local motivation for consumption tax collection and management in the past, further mobilize local enthusiasm for participation in consumption tax collection and management, and promote the improvement of collection efficiency.

For consumption tax taxpayers in sectors such as gold, silver and jewelry, liquor and refined oil, they should take the initiative to adapt to the trend of strengthened supervision and tax system reform, enhance tax compliance awareness, fulfill tax obligations in accordance with the law, and improve tax risk prevention and control systems to achieve steady and healthy development through compliant operations.