China tackling tax evasion in seafood sector on many fronts

Published on
February 11, 2019

Chinese authorities are touting their latest prize in an intensification of their ongoing crackdown in illegal seafood-related operations.

The arrest of a smuggling gang accused of bringing CNY 2.6 billion (USD 385.5 million, EUR 340.3 million) worth of frozen seafood clandestinely across the border from Vietnam over a three-year period was announced in prime-time coverage across regional and national television channels in January. 

Customs and police forces from across southern China collaborated on the prosecution of the gang. The investigators hailed the operation as a triumph in protecting food safety and fair tax collection for the Chinese people. Those arrested include the CEO of a major processing and distribution firm in Dalian, who could face a trial that will set an example for the industry. 

In another high-profile bust, a gang of 55 suspects were arrested in August 2018 for allegedly controlling the marine fishing sector in the port city of Weifang. The gang “occupied by force” the sea space in the outlying Shouguang and Changyi counties and forced fishing and aquaculture companies to pay for access to the water, according to an indictment published by the local Public Security Bureau (PSB), China’s police force. The gang also “taxed” the vessels according to the volume of their catch. 

“Hundreds of thousands of yuan were collected from larger trawlers… otherwise the criminals rammed the vessels or threw Molotov cocktails,” noted the indictment. “The criminals likewise forged documents to claim subsidies for fishing vessels.”

The gang was active from 2006 until the arrests were made, according to Sun Wu Xing, a spokesperson for the Public Security Bureau. Sun did not explain why the gang operated for so long without detection, even though China remains tightly policed by both PSB and Communist Party-organized civilian inspectorates. 

Across China, demand-driven high prices have incentivized more criminal activity across the seafood sector, including the seafood restaurant trade. City authorities in Haikou have established a price ceiling for various seafood species to fight price-gouging. Consumers with complaints are encouraged to report transgressors with a hotline number or a weixin (Wechat) microblogging site. This follows a wave of cases in previous years of similar malpractice by restaurants for seafood – traditionally the premium product in the annual Chinese New Year dining rush.

Also occurring during the run-up Chinese New Year, inspectors were dispatched to seafood markets to check for scale-tipping, with those engaged in the previously-common practice facing hefty fines and tax audits, according to uniformed officers from the State Administration of Industry and Commerce (SAIC) in Dalian, one of several state law enforcement groups involved in the crackdown.

Seafood wet markets have also been targeted for other smaller-scale crimes, including one market in Liuzhou in Guangxi Province, where authorities seized carts from vendors for allegedly “causing a din” that annoyed local city residents. 

Food safety remains the foremost issue for the seafood industry in China, but several of these incidents pull together a narrative of a newly-emerging top issue for China’s government. For many years previously, China’s “grey trade” like that prosecuted in Dalian – whereby product entered China at a price advantage by avoiding customs duty – was tacitly accepted. But renewed enforcement vigor from authorities in recent months, as well as a move against evasion in the fragmented seafood catering and distribution trades, which have long been known for minimisation of tax, reveal a clampdown against tax evasion may really be what’s at play. 

In calls by SeafoodSource to consumers and vendors across China, several sources suggested tax collection is a key driver behind the government’s many fronts of the government’s seafood-focused crackdowns. The seizure and closure of the wet market Liuzhou was initiated by complaints from a new indoor market and local retailers – all registered legally with the tax bureau – seeking to increase sales.  And inspections by sanitary and tax authorities invariably follow cases of price-gouging reported to the SAIC, which handles business licensing in China.  

Tax collection has become an issue of mounting urgency for China’s government, which sees a need to increase revenue as its economic growth gradually levels off and taxes from previously reliable income-sources, including a booming real estate market, fade. Additionally, pressure from legitimate tax-paying distributors and retailers has forced government’s hand. Large, well-connected retailers like Alibaba and state-owned importing firms like CNFC and COFCO – all of which have invested significantly in distribution networks and hardware – don’t like the unfair competition offered by smugglers. And the growing power of the former allows government more efficiency in monitoring regulatory and tax compliance.  

China’s aim – and need – to collect more tax will become more apparent in 2019. But it will have to balance that desire against its populace’s growing demand for seafood. And it will also have to confront a long-festering illness in the seafood sector – despite the ongoing campaigns against smuggling and price cheating, there appears to be a persistent, deeper problem of corruption allowing organized crime to exert influence over seafood production as well as distribution. 

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