Abstract
Import tax evasion is difficult to observe and measure, as no official records of such illicit activity are available. However, in the case of smuggling activity across the China????????????Hong Kong border, by examining the differences and gaps between the customs records kept by the Chinese, Hong Kong and U.S. authorities and by studying the re-exports via Hong Kong to China of products originating from the United States, it is possible to construct fairly reliable proxies to measure import-tax-evasion activity.
This paper describes the principal forms of import tax evasion associated with the importation of food and agricultural products into China???????????? underinvoicing, underreporting, relabeling, reclassification, contraband and bonded-imports leakage????????????and examines the main drivers and inhibitors of such smuggling activity. The paper then shows some numerical evidence of smuggling activity found in import/export statistics and makes inferences about the economics of tax evasion. Finally, the paper suggests some government policies that can be applied to limit these illicit activities and some relevant approaches to business planning by private-sector traders and distributors to minimize the potential disruptions caused by seemingly cost-advantageous illicit trade channels.