Editor’s Note: On September 28, the State Taxation Administration (STA) issued the Announcement on Issuing the National Tax Administrative Penalty Discretion Benchmarks (2026 Edition) (STA Announcement No. 20 of 2026). It takes effect on November 1, 2026. Where a regional tax administrative penalty discretion benchmark is inconsistent with it, the national benchmarks prevail. Among the 66 tax administrative penalty items, the rules on fines for tax evasion deserve particular attention. This article explains and analyzes the main content of these rules for readers’ reference.

01 The Benchmarks Set the Penalty Tier by the Facts of the Violation and the Multiple Within Each Tier by Cooperation and Repayment

Item 19 of the National Tax Administrative Penalty Discretion Benchmarks (2026 Edition) covers the following conduct: a taxpayer forges, alters, conceals, or destroys without authorization its account books or accounting vouchers; overstates expenses or omits or understates income in its account books; refuses to file a return after being notified to do so by the tax authority; or files a false tax return; and as a result fails to pay or underpays the tax payable. This is tax evasion as defined in Article 63, Paragraph 1 of the Law on the Administration of Tax Collection. That paragraph provides for a fine of not less than 50% and not more than five times the tax unpaid or underpaid. For the same violation, the maximum fine is therefore ten times the minimum. The Benchmarks divide this range into four tiers.

Structurally, the rules work at two levels. The first level sets the tier, based on three facts of the violation: the number of times the party has been penalized, the amount of tax evaded, and the evasion ratio. The number of penalties first sorts parties into two groups. Unless other serious or severe circumstances are present, a party penalized for the first time within five years falls into the minor or ordinary tier, and a party penalized two or more times falls into the serious or severe tier. Within each group, the amount and the ratio then separate more serious violations from less serious ones. The second level sets the specific multiple within the tier, based on circumstances such as active cooperation with the inspection and voluntary payment of the full amount of tax due. These circumstances do not change the party’s tier. They only decide whether the minimum for that tier can be applied.

This structure differs clearly from the previous rules. Most of the six regional benchmarks set their tiers by whether the party cooperated with the inspection, whether it voluntarily paid the tax owed, and factors such as the seriousness of the circumstances and the social impact. Only the Northwest benchmark used an evasion ratio of 10% as a supplementary indicator, and none of the regions set an amount threshold. Under those benchmarks, a party found not to have cooperated with the inspection could be fined one to five times the evaded tax in the Northeast, Southwest, and Northwest regions, and one to two times in the North China, East China, and Central-South regions.

The draft for public comment released in July this year did introduce quantitative indicators. However, it would have combined factors such as whether the violation was a first offense, whether the evasion ratio reached 10%, and whether the party cooperated with the inspection or voluntarily paid the tax owed. It set a separate amount condition of RMB 5 million only for the severe tier. Each tier listed several scenarios, and the conditions of different tiers overlapped. This made it hard to place a given case in the right tier, and some ordinary first-time cases could easily have ended up with high-multiple fines.

The final version, by contrast, sets the tier solely by three objective facts: the number of penalties, the amount, and the ratio. The boundaries between tiers are clear, and cooperation and repayment are considered only when setting the multiple within a tier. The rules are more scientific and reasonable. They help standardize enforcement, and they let taxpayers form reasonable expectations about the outcome of a penalty. The sections below analyze the different scenarios in turn.

02 First-Time Tax Evasion Is Tiered by Both Amount and Ratio, and Most Cases Receive a Fine of Only 0.5 Times

For parties penalized for the first time, the Benchmarks use “or” in the minor tier and “and” in the ordinary tier. If the underpaid tax is less than RMB 500,000 or the ratio is less than 30%, meeting either condition is enough for a fine of 0.5 times. Only when the amount reaches RMB 500,000 and the ratio reaches 30% does the case enter the ordinary tier of 0.5 to 1 times. This combination greatly widens the reach of the 0.5-times fine. For example, a company that underpaid RMB 3 million in tax, accounting for only 20% of its tax payable, is fined 0.5 times. A company that underpaid RMB 400,000, accounting for 40%, is also fined 0.5 times. A company that underpaid RMB 600,000, accounting for 35%, meets both thresholds, so only then does the range of 0.5 to 1 times apply.

The Benchmarks therefore do not judge tax evasion by amount alone. They weigh the seriousness of the violation by combining amount and ratio. A large company may evade a large amount at a low ratio, so the violation affects only a small part of its business. A small company may evade at a high ratio but a limited amount, so the resulting tax loss is also relatively limited. Both are fined 0.5 times, and a higher multiple applies only where both the amount and the ratio are high. This better satisfies the principle that the penalty should be proportionate to the violation. Numerically, RMB 500,000 matches the threshold for a “huge amount” of tax evasion in the judicial interpretation on tax-related crimes issued by the Supreme People’s Court and the Supreme People’s Procuratorate. The 30% figure matches the ratio requirement for the second sentencing band under Article 201 of the Criminal Law.

Take two publicly available Tax Administrative Penalty Notices as examples. In May 2026, the Inspection Bureau of the Kizilsu Kirghiz Autonomous Prefecture Tax Service issued Notice Ke Zhou Shui Ji Fa Gao [2026] No. 8 to a manufacturing company in Xinjiang. The notice found that the company had concealed fiscal subsidy income and underpaid RMB 1.435 million in enterprise income tax, an evasion ratio of 93.51%. Citing the band of one to five times in the Northwest regional benchmark, it proposed a fine of one times the evaded tax, that is, RMB 1.435 million. In June 2026, the First Inspection Bureau of the Enshi Tujia and Miao Autonomous Prefecture Tax Service issued Notice Zhou Shui Yi Ji Fa Gao [2026] No. 8 to a handicraft shop in Enshi City. The notice found that the shop, a fixed-amount taxpayer, had actual average monthly turnover 13.88 times its assessed amount and had not reported its actual income. This constituted tax evasion through a false tax return, involving RMB 85,400. Under the serious tier of the Central-South regional benchmark, the notice proposed a fine of one times, imposed together with the penalty for its failure to file.

Under the final version, the Kizilsu case is a first penalty within five years, and the underpaid tax exceeds RMB 500,000 at a ratio above 30%, so the ordinary tier of 0.5 to 1 times applies. If the company actively cooperated with the inspection or paid the full tax before the tax treatment decision was made, it could be fined 0.5 times, half the amount proposed in the notice. In the Enshi case, the evaded tax is below RMB 500,000, so the minor tier applies directly and the fine is 0.5 times, regardless of the ratio or whether the shop cooperated. Under the rules of the draft for public comment, by contrast, the evasion ratio in the Kizilsu case was 93.51%, and actual income in the Enshi case was 13.88 times the assessed amount. Both ratios clearly exceed 10%. Even if the parties were found to have cooperated, a fine of one to three times would apply, and if they were found not to have cooperated, a fine of three to four times would apply.

In cases that fall into the ordinary tier, whether the fine can be set at 0.5 times depends on whether the party actively cooperated with the inspection or voluntarily paid the full amount of tax due. In practice, how well this rule works depends largely on how “active cooperation” is determined. Some tax authorities have treated a party’s objection to the characterization of the conduct, or its failure to admit the violation, as a refusal to disclose or admit, and on that basis denied that the party cooperated. In the author’s view, where the tax authority’s investigation has established the facts clearly, a company that truthfully explains the situation, admits the violation, and proposes a plan to pay the tax owed should be found to have actively cooperated. A party that presents statements and defenses under the law, or raises a different view on the characterization or the application of law, is exercising a statutory right under the Administrative Penalty Law, and this should not be treated as non-cooperation. Notably, even if a party is not found to have actively cooperated because it raised objections, under the final version it only loses access to the minimum within its tier. It will not be moved to a higher tier as a result. Under the regional benchmarks and the draft for public comment, “non-cooperation” was itself a condition for entering a higher tier, so raising objections could multiply the fine.

03 Fines of One Times or More Are Limited to Repeat Penalties Within Five Years or More Serious Circumstances

The Benchmarks treat first-time penalties leniently. Correspondingly, they make “having been given administrative penalties by the tax authority two or more times within five years” the basic condition for a fine of one times or more. The Criminal Law imposes heavier punishment on recidivists who commit another crime within five years after completing a sentence, because an offender who does not reform after being punished shows greater subjective culpability and a higher risk of reoffending. The Benchmarks follow similar logic. They treat a repeat penalty within five years as the basis for heavier punishment: a first violation is given a chance to correct itself, and repeated violations are dealt with strictly. For the vast majority of ordinary companies investigated for the first time, fines of one times or more will rarely arise, and the penalty serves more of an educational function.

Beyond repeat penalties, the serious and severe tiers each contain a catch-all clause for “other serious circumstances” and “other severe circumstances.” A first-time offender with such circumstances may also be fined one times or more. Read in the context of the whole system, these catch-all clauses should target tax evasion that shows obvious subjective culpability and has a significant social impact. For example, in the cases of Fan Bingbing, Zheng Shuang, Kris Wu, and Viya, the parties evaded taxes by splitting contracts, concealing income, and fabricating transactions to change the character of their income, and the relevant portions were fined three to five times. Even so, the catch-all clauses should be applied only to circumstances as serious as those expressly listed in the same tier. Ordinary non-cooperation or absconding should not be read broadly as “other serious circumstances.” Otherwise, the design principle that a first-time penalty will in principle not exceed one times would be hollowed out.

It should also be noted that the Benchmarks list no circumstances that allow a case to move down a tier. In the serious and severe tiers, even a party that actively cooperates and pays the full tax owed can receive only the minimum for its tier, that is, one times or three times, and cannot drop to a lower tier. Dealing strictly with repeat violations and egregious tax evasion is reasonable in itself. However, Article 3 of the Announcement also provides that where statutory circumstances for a lighter or mitigated penalty exist, a lighter or mitigated penalty shall be decided in accordance with the law. Article 32 of the Administrative Penalty Law lists such circumstances: the party voluntarily eliminates or reduces the harmful consequences of the violation, voluntarily confesses violations the tax authority has not yet discovered, or performs meritorious service by cooperating with the investigation. Where a party has any of these, the penalty shall be mitigated in accordance with the law. In that case, the fine is not bound by the lower limit of the tier and may be set by reference to a lower tier, so that the fine in an individual case is not clearly excessive.

04 Conclusion

The discretion exercised over fines for tax evasion affects the real burden a company bears after being investigated, as well as the uniformity and fairness of tax enforcement. The Benchmarks set the penalty tier by the number of penalties, the amount evaded, and the evasion ratio. They set the multiple within the tier by active cooperation and voluntary repayment. They limit fines of one times or more to repeat penalties and to serious or severe circumstances. This design does not rely on amount alone. It makes 0.5 times the main penalty for a first violation and reserves high-multiple fines for the small number of repeat or egregious cases. It meets the need for uniform enforcement standards, and it reflects the principles that the penalty should be proportionate to the violation and that penalties should be combined with education.

How well the rules work in practice still depends on applying them correctly in individual cases. Under Article 6 of the Announcement, where a tax violation occurred before the Benchmarks took effect and the tax authority has not yet made a penalty decision, the Benchmarks apply if they are more favorable to the taxpayer. A company that has received a penalty notice but no penalty decision yet should compare the old and new rules, and argue for the more favorable standard in its statements, defenses, and hearing. After the tax authority makes a penalty decision, a company that believes its tier was wrongly determined or the rules were misapplied may also apply for administrative reconsideration or bring an administrative lawsuit in accordance with the law. From the tax inspection stage onward, companies can engage professional tax lawyers to protect their rights in accordance with the law and seek a penalty proportionate to the violation.