Some time ago, the State Taxation Administration issued a public statement.

In addressing the "invoice economy," a one-size-fits-all approach is not appropriate.

Without conducting actual verification, authorities should not simply suspend or limit a company’s invoice issuance or reduce its invoice quota.

Local governments engaged in investment promotion now face a dilemma of “having to do both.”

While eliminating inflated figures, we must not inadvertently harm compliant enterprises; while correcting performance metrics, we must not damage the business environment.

The true test lies in local governments’ ability to employ “tailored measures” in their investment promotion efforts.

The key to rectifying the "invoice economy" lies not in how harshly we crack down, but in how accurately we differentiate.

01 Intensifying Crackdowns While Correcting Course

Over the past six months, the “invoice economy” has remained a hot topic.

Local governments play a significant role in the conditions that foster this phenomenon.

For local governments, the loss lies in tax revenue leakage; however, through such invoice-issuing chains, enterprises inflate their output value, creating a semblance of prosperity on paper that benefits their performance evaluations.

The Central Economic Work Conference specifically identified this as one of the economic irregularities that urgently need to be addressed.

A typical scenario of the “invoice-driven economy” involves certain localities crossing the boundaries of fiscal systems and tax laws to meet economic, fiscal revenue, or investment promotion performance targets.

Through fiscal rebates, subsidies, and other incentives, they attract shell companies—entities with no physical presence, no staff, and no real business operations—to set up shop, creating a false illusion of economic prosperity through mere numerical manipulation.

Looking back at the evolution of policies, the focus has been shifting forward.

It has progressed from a phase of targeted crackdowns on fake enterprises, fake exports, and false declarations, to last year’s phase of clearing “policy loopholes” and plugging institutional gaps to ensure substantive operations.

Now, we have entered a phase of explicit characterization and high-pressure rectification targeting the “invoice-driven economy” and “involution-style” competition.

For the first time, the National Tax Work Conference has included this as a key annual task, placing the in-depth rectification of tax-related issues in investment promotion and the “invoice economy” on the same highest priority level as the crackdown on fraudulent invoicing and tax evasion.

Eight government departments have established a routine joint crackdown, making the “policy loopholes” created by “tax rebates” and “fiscal subsidies” a key focus of governance.

Results are now becoming evident.

From January to April 2026, the six industries with a high concentration of enterprises involved in non-compliant investment promotion were:

Comprehensive utilization of waste resources; recycling of reclaimed materials; wholesale of mineral products, building materials, and chemical products; organizational management services; information technology consulting services; and road freight services.

So, why these six categories?

These industries are characterized by light assets, ease of relocation, long supply chains, and large transaction volumes, making them prone to large-scale invoice fraud.

However, while the crackdown has intensified, a clear signal for correction has also been sent.

In late April, the State Taxation Administration issued a positive list of 16 items and a negative list of 28 items for taxpayer compliance in issuing invoices, establishing "standard lines" and "warning lines" for corporate compliance.

Shortly thereafter, this month brought further clarification: there will be no one-size-fits-all approach, no blanket suspension or restriction of invoicing, and no arbitrary reduction of tax quotas.

Cracking down on one hand and protecting businesses on the other conveys the same message:

Local investment promotion efforts must shift their focus from “how hard to crack down” to “how accurately to differentiate.”

02 Risk of Collateral Damage: Categorized Cleanup

To achieve “precision-targeted” measures, we must first understand why “collateral damage” occurs.

This is because non-compliant “invoice-based businesses” and legitimate enterprises often share similar outward appearances.

Light assets, long supply chains, frequent invoicing, and a high likelihood of shell entities.

These characteristics serve as a typical breeding ground for the “invoice-based economy,” yet they are also inherent attributes of legitimate business models such as online freight, flexible employment, and bulk commodity pallet trading.

Once labeled with a fixed tag, legitimate projects may also be “scared off.”

According to reports, Company A, with an annual output value of 30 million yuan, used three shell companies to funnel funds and issue fake invoices, inflating its figures to 120 million yuan in a single round.

In this single cycle alone, the local area effectively inflated its output value by over 100 million yuan. This is how so-called “digital prosperity” is artificially inflated.

This serves as a cautionary tale, but it also offers a counterintuitive lesson. While rule-breakers actively seek out “tax rebate havens,” compliant enterprises are equally engaged in genuine business models such as “headquarters-branch” and “centralized procurement and invoicing.”

For local investment promotion, this means what is needed is “the discernment to differentiate,” not “the courage to apply a one-size-fits-all approach.”

To achieve “precise categorization,” we must first clearly identify three types of entities.

First, those that must be weeded out must be dealt with decisively.

The first category consists of non-compliant entities that are “purely shell companies, engage in fake transactions, and seek to issue fraudulent invoices”—entities with no physical premises, no staff, and no actual business operations, whose sole purpose is to fabricate transactions and siphon off fiscal rebates.

For such entities, there must be zero tolerance and resolute elimination. Relying on joint crackdowns by eight departments—including tax authorities, market regulators, and public security—and leveraging cross-regional investigative mechanisms, we must conduct precise screenings and shut them down in accordance with the law.

For local investment promotion departments, a more profound task is to completely remove such entities from investment promotion directories.

Second, we must spare no effort in protecting those who deserve it.

These entities are high-quality enterprises that “have a physical presence, conduct legitimate business operations, and issue invoices in compliance with regulations.”

In practice, many technology-based and platform-based companies, driven by the need for scale and efficiency, adopt a model featuring “centralized headquarters registration, branch operations in different locations, centralized procurement, and unified invoicing.”

Invoice issuance is fully consistent with the substance of their business operations and the flow of funds. Such enterprises not only align with market principles but also drive local industrial clustering, tax revenue, and job creation.

For local governments, these are precisely the target clients for high-quality investment promotion, and governance boundaries must be clearly defined.

They must not arbitrarily restrict invoicing authority or unlawfully revoke legitimate industrial support; rather, they should proactively coordinate with tax authorities to optimize service processes and streamline invoicing procedures.

Finally, for those requiring rectification, a deadline must be set.

For transitional entities that are “imperfect, rectifiable, and in need of standardization”:

Some have actual business operations but face issues such as “incomplete alignment between invoicing and business operations” or “failure to promptly file for cross-regional operations.” The root cause is not “fraudulent invoicing or subsidy fraud,” but rather a lack of standardization.

For such entities, guidance should take precedence over penalties. A reasonable rectification period should be granted, with clear requirements for correction. Those that become compliant after rectification may continue normal operations; those that fail to rectify within the deadline or remain non-compliant after rectification will be dealt with in accordance with the law.

In this way, establishing a daily working mechanism of “rectifying a group, standardizing a group, and retaining a group” is key to the refined governance of local investment promotion.

03 Three Ledgers: Local Governance

For local governments, a deeper level of governance involves re-examining the “three ledgers.”

A “shell company”—with no physical presence, no staff, and no real business operations—settles in an industrial park, contributing tens of millions in invoiced revenue over a year.

This adds one to the number of enterprises above a certain scale, one to tax revenue growth, and one to total revenue. The achievements on the reports are almost entirely fabricated at “zero cost.”

However, the 2026 evaluation system targets substantive operations, calculating performance based on actual results.

The central government has explicitly opposed “involutionary” competition, and the State Taxation Administration has drawn “four prohibitions” as red lines for local tax authorities regarding non-compliant investment promotion practices: they must not devise schemes, must not participate or cooperate, must not fail to report known violations, and must not neglect oversight.

What does this mean? The “substance” of enterprises above a certain scale is now coming under audit scrutiny. “Paper-only” enterprises—those with only invoicing figures but no employment, R&D, or genuine output—have become points deducted from performance evaluations.

The performance reports of local officials are being recalibrated based on “genuine employment, genuine R&D, and genuine output,” signaling that these performance evaluations have taken root.

In the past, local investment promotion efforts would invite companies to establish regional headquarters in their areas and offer VAT rebates.

However, the VAT paid to the central government is first allocated 50% to the central government, with the remainder divided between the province and the city/county. Generally, a certain percentage of the VAT actually received by the city or county is returned as a rebate.

Take land incentives as an example: when some enterprises set up operations in a certain area, they acquired a plot of land through public bidding.

The local government would promise to refund a portion of the land transfer fee—which typically exceeds 100,000 yuan per mu—effectively reducing the cost by 50,000 yuan per mu. In some regions, these refunds were even spread out over a period of twenty years.

However, this practice has been largely blocked across the entire chain, and the accounting for such agreements has become more transparent.

An official from the Audit Bureau admitted: “Currently, when conducting economic responsibility audits of local officials, we focus particularly on whether enterprises have received illegal fiscal subsidies.”

It is understood that most localities have rescinded previously signed non-compliant tax-related agreements and will adhere to a “list of encouraged and prohibited items” when signing new agreements in the future.

By establishing red lines in advance, enabling real-time monitoring during implementation, and ensuring traceability after the fact, the boundaries—specifying where local governments can offer concessions and where they must not compromise—have been clearly defined for the first time in a national-level document.

Once the channels for inflating data are blocked, the true competition among local investment promotion efforts will return to the industries themselves.

Is the industrial chain complete? Are supporting facilities mature? Is the business environment welcoming? Are long-term commitments fulfilled?

Once the data is scrutinized, the reputation of local investment promotion efforts will face a collective reckoning. For high-quality enterprises, reassessing the credibility of local data is essentially a matter of credit.

Regions that rely on tax rebates to inflate their numbers in the short term will be marginalized. Industrial capital seeking long-term investment will vote with its feet, flowing toward regions with credible data and transparent rules.

In Closing

Addressing the “invoice economy” is not about how harshly one cracks down, but how accurately one distinguishes.

Targeted cleanup and tailored policies are the most direct manifestation of local governments’ governance wisdom.

After all, no matter how thick the invoice paper may be, if it cannot support industrial development, it runs counter to a performance evaluation system grounded in reality.