Using Lottery Payouts to Fight Tax Evasion?

(Photo: Kenneth Lu)

Yesterday we gave an update on how attaching a lottery payout to bank accounts can help people save more money. A reader named Drew writes in about a different lottery nudge:

When I was studying abroad in China (2006) a friend told me that I should always insist on getting the receipt whenever I ate at a restaurant, because the receipts are scratch-off lottery tickets.

I didn’t think very much of it at the time (as a visitor, I didn’t think I’d ever collect any winnings), but one of the Freakonomics podcasts that talked about capturing unreported income (I think it was “The Tax Man Nudgeth“) reminded me of their ingenious system to encourage customers to demand that restaurants report their income.

I wasn’t sure if it was still going on, but this blog suggests that it still was at least a year ago. Here is an older post with a little bit more detail about the system.

It’s apparently known as fapiao, and here, from the second link Drew sent, is a description:

Fapiao is a bill; a receipt; an invoice, paper to support warranty and contract, further more, it is a state lottery. It is in fact all of the above. To many foreigners, they do NOT value this piece of paper, thinking it is simply for tax purpose, and they do not have to declare their income in China, so fapiao is useless to them.

The fapiao system is used by Chinese tax authorities to calculate and collect business taxes as well as to deter tax evasion. A fapiao is provided by businesses to consumers for the amount of services or goods rendered much like a receipt.

However, there are some big differences between a receipt and a fapiao:

  • Fapiao are issued in denominations, like currency.
  • Fapiao also generally do not itemize what the purchase was for.
  • Some stores that deal a lot with expatriates will issue a receipt; others will only give a fapiao.
  • Some will provide both, and a few will not give either (avoid those places)!
  • Fapiao sometimes include scratch off panels concealing authentication passwords that can be redeemed for prizes in a lottery format.

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  1. Conrado says:

    In the State of São Paulo (Brazil) customers can provide their ID number when requesting a receipt. These customers can later on receive (in cash) up to 30% of the state taxes of these purchases (up to 6% of the purchase value), segments with higher tax evasion will provide higher returns. These customers will also compete in state lotteries based on the total value of the receipts each month.

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  2. Steve Tensmeyer says:

    I’m in China now, and I can confirm that it’s still going on, at least as of three hours ago when I ate dinner. And interestingly, the other day while we were at dinner, someone asked for the receipt, and the waiter offered him a free can of coke instead. I assume they’ve run numbers and found out what it’s worth it for them to give free. So it is an ingenious scheme, but of course people can still bargain around to an efficient solution for the two parties that’s inefficient for society as a whole.

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    • Victoria says:

      I too am living in China and actually wrote a blog post about this system a few months ago…

      restaurants that are able to give fapiao but choose to offer a beverage instead are just following their incentives. I would say it’s probably always worth it for them to give a beverage worth less than one yuan rather than give a receipt that would record the transaction and thus be reported for taxation purposes later. Now, if the government were able to moderate this system a little better and penalize restaurants that essentially lie about their revenue, the incentive to cheat the system would not exist (or would be lessened).

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  3. hanmeng says:

    This system would seem to have been inspired by the one in Taiwan.
    https://en.wikipedia.org/wiki/Uniform_Invoice_lottery

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  4. Gonzalo says:

    This was also implemented in Chile in the 80s, when a new Value Added Tax was introduced. Initially evasion was around 30% and the Internal Revenue Service ran a campaign where you had to collect 30 receipts and send it to the most popular TV show at the time to participate in a contest for a new house. The more you sent, the better your chances!
    The impact of this campaign apparently was never evaluated, but anecdotically it clearly contributed to the habit of requesting the receipt.
    For Spanish speakers/readers, there is some interesting information in this newspaper article:
    http://www.eychile.cl/wp-content/uploads/el-mer-iva.jpg

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  5. Kenneth Lu says:

    The word “fapiao” or ?? literally means receipt or invoice.* A “fapiao” is NOT some special thing that’s distinct from a receipt, so while different establishments issue different types of receipts, the given list of differences between “receipts” and “fapiao” makes no sense and must be a misunderstanding?

    And of course only some of the properties listed here apply to any given receipt. For instance, in the photo I took above, you can see how that receipt is not itemized and has a lottery number, but it’s for the bill total of 1003.00, not some fixed denomination.

    *?? (shouju) also means receipt, but there’s not much practical difference between the two terms.

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  6. Matt Harris says:

    When I ask for a shou tiao I get an itemized register receipt instead of the fa piao tax receipt.

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  7. Jaime says:

    In Spain lottery payouts are most often associated with Tax Evasion (specifically the laundering of illegally untaxed earnings) and has become the prime MO of some of my country’s most notorious tax dodgers. Most notably a man called Carlos Fabra has won the loterry on 7 ocassions, achieving multi million euro earnings…. (I should note that this man is not in jail and will probably never end up there… cause….*sigh*… thats Spain)

    Any clever ideas how to end this through economic incentives?

    Link 1: http://www.spainreview.net/index.php/2011/12/23/el-gordo-the-top-prize-in-christmas-lottery-is-the-number-58268/

    Link 2(losely related): http://www.guardian.co.uk/world/2012/jan/10/spanish-politician-accused-megalomania-monument

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  8. Ruben says:

    Puerto Rico has recently tried a similar approach.

    http://in.mobile.reuters.com/article/lifestyleMolt/idINBRE8760HD20120807

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