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How China got businesses to pay taxes: scratch-n-win tickets

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Like many developing countries, China’s cash-based economy makes it difficult for authorities to track transactions and easy for people to evade paying taxes.

A decade ago China was losing one billion yuan ($158 million) a year in tax revenues according to Junmin Wan, a Chinese scholar at Japan’s Fukuoka University, citing calculations study in the journal Tax Notes International.

In 1994, the Chinese government took serious measures to address this and implemented the Golden Tax Project, which involved updating its computer systems to increase the efficiency of tax collection. The Golden Tax Program also included a lottery receipt or fapiao experiment, which incentivizes consumers and businesses to declare taxes by having receipts, printed via specially designed forgery-proof machines, double as lottery tickets. 

The program was launched in 1998 in Haikou, the capital of Hainan Province. By 2002, 80 major cities were using the lottery receipt and today, it is enforced nearly nation-wide. Taiwan was the first to implement the lottery receipt program off the mainland in 1950.

How it works

Businesses purchase special machines that print special receipts known as fapiao in addition to regular receipts, called shouju, that cash registers provide. Every time a receipt is printed, a transaction is recorded and taxes must then be paid on it. To ensure owners actually use the machines, the government got creative: The fapiao that the machines print out are essentially scratch-and-win tickets with prizes ranging from 5- to 50,000 yuan ($.75 to $8,333). For perspective: A subway ticket in China is 2 yuan, and a monthly phone bill is about 60 to 127 yuan for an iPhone.

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