In December 2008, the tax bureaus of Gansu Province and Zhangye City investigated the Zhangye Tengda Metal Co., based on information forwarded from other government bureaus. The local and provincial tax bureaus established a task force with the local police departments to carry out the investigation. The investigation showed that since March 2006, the criminal suspects Cui Xinge and others has established the Zhangye Tengda Metal Co., Ltd., the Zhangye Hongye Scrap Metal Recycling Co., Ltd. as well as six other companies. These companies were established by using the identities of 10 disabled persons to set up the companies as well as act as the companies Legal Representatives and Shareholders. It was proven that the companies had never engaged in the buying or selling of scrap metals, or processing, manufacturing or selling metal materials, yet had issued 328 counterfeit VAT invoices which were sold to 66 companies in Beijing, Tianjin, Hebei and other six provinces (cities). The 328 invoices were sold for RMB 188.4 million (US$ 27.64 million) which allowed the 66 companies who purchased the fake invoices to evade tax in the amount of RMB 220.44 million ($ 32.35 million).

This prosecution of the case was supervised by the State Administration of Taxation with the assistance of the local taxation bureaus of the various provinces involved. After the investigation, the tax and public security authorities ultimately recovered the total amount of unpaid taxes as well as collected more than RMB 6.72 million in fines. On December 17, 2009, the Zhangye Intermediate People¡¯s Court sentenced the defendants (Qian Yanlong, Cui Xinge and others) to life imprisonment, deprived them of the political rights for life and confiscated all of their personal property.

Chinese Premier Wen Jiabao recently pointed out in his government work report that the government will continue to do the transformation of value-added tax. It can be expected that the VAT reform that began on January 1 of last year will play a greater role in 2010

Data has shown that the annual deducted amount of tax in 2009, since the implementation of the VAT reform is about 140 billion Yuan. This means that the taxes levied on enterprises have been effectively reduced.

Since the second half of 2008, China has raised the export rebate rate of some industries and products eight times in succession, optimized the export rebate process and sped up the export rebate progress, which has not only stabilized export industries, but also increased the confidence of enterprises when China's economy was facing extreme difficulties.

Although the one-year VAT transformation has laid the foundation for the economic recovery, further reform are anticipated. The current VAT transformation only allows enterprises to offset the original equipment cost in the fixed assets investment, so the plant construction cost accounting for up to 62% cannot be offset. The future VAT transformation will also continue by "expanding tax bases and reducing tax rates" to incorporate more industries in the scope of taxation, and appropriately relax the tax cut standards, which is supplemented by appropriately reducing tax rates. It is also planned to eventually replace the sales tax with the value-added tax. Taxes paid in the service industry in which the sales tax and the value-added tax are concurrently collected will be reduced.

In the long term, the government hopes to gradually incorporate the businesses levied the sales tax into the VAT system through the further adjustment of the incidence of taxation to make the value-added tax transformed from production-oriented to consumption-oriented.

On January 20th, the State Council issued "a work plan for the year 2010", in which the VAT legislation became the focus of this year.