China has created a lottery system to get consumers and businesses to pay their taxes.
It is estimated that the IRS loses hundreds of billions of dollars every year because of tax cheats.
China has the same problem. Up until 2011, they executed the tax cheats they caught. Now they are doing something less violent, going for a reward-based system rather than a punishment system.
It is estimated that one-sixth of China’s economy is conducted in a manner that allows transactions to take place without paying taxes. This under-reporting of economic activity is particularly serious in the service industry, where 20 to 30 percent of business is conducted out of the eyes of government officials. In 2010, approximately 95 percent of all transactions in China used cash rather than checks or credit cards.
The Chinese government decided it wanted what was coming to it, so it issued mandatory receipt machines, which records every transaction and keeps track of necessary tax costs and payments. The machine itself is reportedly impossible to manipulate. But if the retailer and the consumer want to avoid paying tax on a transaction, they conduct the business using cash, no receipt is issued and no receipt is recorded.
The problem had not been solved. Without a 24-hour monitoring presence at every place of business, China was still not getting the taxes it deserved from business conducted in the country.
So government officials decided to make receipts more attractive. They attached lottery numbers to each receipt, and set up a national lottery to issue awards to winning tickets.
In the early years of the system, the Chinese government reported an annual increase in tax revenue of 900 million yuan (one yuan equals $6.5), against an annual payout of 30 million yuan in lottery prize money.
The government wins with the lottery system, and some consumers win as well. Businesses end up paying the price by paying taxes they would otherwise not pay.
So businesses are enticing consumers not to request the receipt by offering them free drinks or overall discounts instead of a receipt for business conducted.
China and the U.S. are not alone in the tax cheat problem. According to recent estimates, the “underground economy’’ accounts for 25 percent of the GDP in Greece, 22.3 percent in Italy and 19.3 percent in Spain.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.