How China is fighting corruption with Blockchain

China has been on the verge of adopting blockchain in recent times. In fact, technology has become part of the national program signed by the president. The latest advances in the field relate to the old corruption issue in the country: fake invoices used for the appropriation of corporate and state funds.

The city tax authorities of Shenzhen and a state-owned aerospace enterprise have recently turned into blockchain for immutable and transparent accounting, ending the corruption of pocket books.

Complex Chinese billing system "fapiao"

To understand the nature of the latest blockchain solutions for the Chinese billing system, its overall context should be explained first. Essentially, it revolves around the concept of the so-called "fapiao" (the Chinese word for an official invoice), which is a legal receipt that serves as proof of purchase of goods and services.

The fapiao are issued by the Chinese Tax Office – but supplied by the seller – for all goods or services purchased within the country. The Chinese government uses these invoices to track tax payments and prevent tax evasion. Individuals need fapiao to claim business expenses, while companies are forced to register their transactions on a fapiao – otherwise they violate the law.

However, the fapiao system, founded in the 1980s, is widely corrupt. As a New York Times article suggests, those tax bills are openly sold on the streets, which are original ones that have not been claimed in the first place or high quality replicas. Buyers use them to evade taxes and cheat employers: essentially, a Chinese person can get any kind of fake receipt – from travel receipts to VAT (VAT) revenue. Finding them does not necessarily require deep connections to the black market, as promotions for counterfeit fapiaos are sent via text messages or even advertised on Taobao.com, where sellers offer special discounts and same-day delivery of such documents, as revealed by the # 39; NYT article.

State-run agencies are also involved in the big scheme. In 2010, for example, the National Audit Office claimed to have identified central government departments that subtracted up to $ 21 million through the use of fake invoices. Wang Yuhua, an assistant professor of political science at the University of Pennsylvania and author of a study on corruption in China, told the New York Times:

"Their salaries are relatively low, so they integrate a lot with reimbursements. It is difficult to monitor. "

Tax evasion is a serious crime in China – sometimes punishable by death – but that does not seem to hinder the fake fapiao industry. Although the state authorities have impressive statistics on the subject (in 2009 alone they reported the detention of 5,134 people and the closure of 1,045 sites for counterfeit receipts), the system is alive and the fapiaos are also sold in souvenir shops of the region. hotel. However, there is a technology that could finally deal with the system with a certain effect.

Blockchain Against Corruption: Tax Authorities and Tencent's Collaboration

While Bitcoin and other cryptocurrencies are often accused of nurturing corruption – this remains one of the most commonly used Arguments for politicians and conservative businessmen who are skeptical about the prospects of the crypto – its basic technology is an effective tool to fight it. Blockchain, being an immutable, decentralized and encrypted ledger, can provide a clear record of every transaction that took place on it, at any time of the day, thus resolving the problems of inconsistency, false reports and other inconsistencies in the process circulation of invoices.

So the prospect of applying blockchain to combat fapioas might seem particularly attractive to Chinese authorities. It became possible after the Shenzhen National Taxation Bureau collaborated with Tencent, the local Internet lieutenant, the developer of the WeChat app, the one-billion-user social media app, to fight the Internet. tax evasion in May. In the wake of their collaboration, they have created an "Intelligent Tax" innovation laboratory that aims to promote a technological approach in the fiscal field, including the use of cloud computing, artificial intelligence, blockchain and Big Data, said the press release. [19659002LapubblicazionehaancheesplicitamentedelineatoilprimoobiettivodellacollaborazionepoichéLiWeivicedirettoredell'UfficiocomunaleditassazionedelloStatodiShenzhenhaaffermatocheilsuccessodiTencentnell'applicazionedellablockchainperlafatturazioneavrebbeaiutatoacombatterelaquestionedellefapioasfalsee"Migliorareilprocessodisupervisionedellefatture"

First results: "A bond without friction between consumption scenarios and tax services"

On August 10, the local news EEO platform reported that China's first digital bill on the blockchain was issued in the city of Shenzhen, where the above collaboration was announced.

Thus, Tencent created a pilot blockchain ecosystem for invoices designed for full use by consumers, merchants and tax authorities, according to local publication. The debut invoice was issued by a local restaurant, while many other companies in Shenzhen have already been granted access to the system, including a car park, a garage and a bar.

Cai Yunge, general manager of Tencent's blockchain, cited by EEO, which states that the new system achieves "a frictionless link between consumption scenarios and tax services." Consumer payments are facilitated through Tencent's WeChat and, according to reports, an appropriate invoice is generated for further "one-click" inspections and management. "

Conversely, the processing of a traditional invoice requires multiple steps and takes a long time: when a consumer completes a transaction, he must wait for the merchant to generate the invoice, store it securely, complete a return form. in Finance Department, wait for the documents to be processed and then receive their returns.

As EEO explains, an electronic invoice with blockchain only requires the c ustomer to perform a click on the WeChat app during checkout. they just have to wait and track the status of repayment in real time via the app. The process leaves no room for false or overdeclarations, and the technology also has the advantage of improving data privacy through cryptography and providing a globally efficient process rationalization from the point of view of costs, since several parts of the review have been excluded from the process.

Other bl eyes on the chain: the state-owned aerospace company adheres to the new scheme

The next actor to adapt the blockchain to combat the corruption caused by the invoices is the state-owned China Aerospace Science and Industry Corporation Ltd. [19659002] According to an article in the popular daily, People's Daily, which was republished by the State Administration of Science, Technology and Industry for National Defense, blockchain will help to innovate the oversight of invoices for tax purposes at the national.

As the article suggests, electronic invoices are on the rise in China: in 2017 there were around 1.31 billion electronic invoices in circulation and in 2022 the number is expected to reach 54.55 billion, as the expected annual average growth rate exceeds 100%.

China Aerospace, in turn, uses end-to-end electronic billing services, which cover the issue, delivery, storage, inspection and reimbursement of tax payers in the country and tority. To date, it has issued around 2.5 billion invoices, as per the People's Daily article.

However, such an electronic invoicing system, like the traditional one, is not secure from problems of excessive reporting, false reporting and traceability. As a result, China Aerospace has now created a blockchain system to allow the issuing of authenticated and "credible" invoices, traceable circulation and efficient and economic supervision of tax authorities, just like in Shenzhen.

The representatives of China Aerospace are confident about fighting the corruption of the fapiao at the root of blockchain technology. As People & # 39; s Daily told a representative of the company, the technology will definitely solve the "sore points" of the sector.

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