Beijing To Launch Pilot For Blockchain-Based System To Tackle Fraudulent Invoices

On March 2, The Beijing Municipal Office of the State Administration of Taxation announced its decision to launch a city pilot for the blockchain-based system with immediate activation for taxpayers in selected industries.

The platform is a tool for the Chinese tax bureau to tackle the underground “fapaio” market, where fraudulent receipts have been used to evade taxes, defraud employers, or claim falsified expenditures for reimbursement.

In China, “fapiao” is a term for official invoices issued by the Chinese Tax Bureau for goods and services purchased in the country.

As the Beijing authorities outline, electronic invoices using the blockchain make use of smart contracts and encryption algorithms to secure the issuance, storage, transmission, security and anti-counterfeiting resilience of documents.

The system reportedly offers complete traceability and tamper-resistance ensuring that data cannot be modified after the fact. Using a private or public-private hybrid chain, the system mediates between the tax department, invoice issuer and recipient, providing oversight on the circulation, reimbursement and reporting process.

As Aly Madhavji, managing partner at Blockchain Founders Fund and Blockchain 100 Global Leader as ranked by Lattice80, told “The fapiao black market in China is massive… The new system significantly reduces the ability to sell and re-sell fapiao while increasing the risk of getting caught.”

Madhavji also believes that the system could be good for businesses and taxpayers as well. “It will likely make filing and reporting quicker over time,” he says, “because the authenticated fapiao would generally be directly linked to each individual business.”

Users require little more than a cell phone or personal laptop to interface with the system, which keeps operational costs low and will foster “a healthy and fair tax environment” in Beijing’s eyes.

The municipal office noted in the announcement that President Xi Jinping has been presiding over a collective study on blockchain technology conducted by the Central Politburo of the Communist Party of China since October 2019.

Those at the very top of the state apparatus have judged the technology to have had “very good applications across all walks of life.” The Beijing pilot is therefore presented as part of a series of reforms dedicated to the decentralization of state services using blockchain.

Following a successful rollout in Shenzhen last year, China’s blockchain invoicing system is being introduced to the capital.

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