With the suspension of tax rebates for online freight services, how can the industry’s VAT policy be optimized?
As an emerging logistics organizational model leveraging internet and information technologies, online freight transport plays a vital role in accelerating supply-side structural reform and enhancing the quality and efficiency of the road transportation sector. However, since the implementation of the business‑to‑VAT reform, the tax burden on the online freight industry has not decreased but instead increased, leading to insufficient profitability and severely constraining the industry’s survival and development. There is an urgent need to streamline the VAT credit chain and effectively reduce the sector’s tax burden.
01 Current Policy Status
In March 2016, the Ministry of Finance and the State Taxation Administration jointly issued Document No. 36 [2016] of the Ministry of Finance and the State Taxation Administration, clarifying that online freight‑transport services are subject to value‑added tax as “transportation services.” Online freight‑transport enterprises are now authorized to issue VAT invoices in the road transport sector, without being constrained by the requirement of owning their own vehicles, thereby affirming their legitimate status as market participants in the road transport industry. In April 2016, the General Office of the State Council promulgated Document No. 24 [2016] of the General Office of the State Council, stipulating that pilot enterprises engaged in online freight‑transport operations may apply for high‑tech enterprise certification and enjoy preferential corporate income tax policies. In August 2017, the State Taxation Administration issued Document No. 30 [2017], specifying that finished petroleum products purchased directly by online freight‑transport operators and used by actual carriers, as well as road, bridge, and toll‑gate fees paid, are eligible for input‑tax credit. In December 2019, the State Taxation Administration issued Document No. 405 [2019], clarifying that online platform‑based road freight‑transport enterprises included in the pilot program may issue special VAT invoices at a 3% rate on behalf of eligible small‑scale taxpayers for transportation services. Between 2018 and 2019, the Ministry of Finance and the State Taxation Administration successively adjusted the VAT rate applicable to the transportation sector from 11% to 9% through Document No. 32 [2018] of the Ministry of Finance and Announcement No. 39. The issuance of this series of tax policy documents has opened up avenues for reducing burdens and lowering taxes for online freight‑transport platforms, thereby fostering the rapid development of the online freight‑transport industry.
In contrast to the rapid growth of the emerging online freight‑transport platform sector, supporting policies addressing business registration, fiscal and tax administration, and tax collection and management have yet to fully keep pace with this new industry model. Moreover, traditional tax‑and‑fee service‑management frameworks remain ill‑suited to the evolving needs of online freight platforms, giving rise to certain challenges and potential risks in the tax‑supervision of such platforms.
(1) Difficulties in Tax Collection and Administration
1. Freight‑truck drivers face significant challenges in completing tax registration. Article 8 of the Measures for the Supervision and Administration of Online Transactions stipulates that online transaction operators may not engage in unlicensed or unregistered business activities in violation of laws, regulations, or State Council decisions. Except for the circumstances specified in Article 10 of the E‑Commerce Law where registration is not required, online transaction operators must, in accordance with the law, register as market entities. However, for online freight‑transport platforms, the drivers participating in their operations are spread nationwide and highly dispersed, leaving key issues—such as how to register them as individual business households—still unclear. At present, most drivers on these platforms have not completed market‑entity registration, posing substantial difficulties for tax authorities in accurately determining tax jurisdiction and assigning tax liabilities. Moreover, relying on drivers to perform manual procedures—such as facial‑recognition authentication for individual business registration, periodic tax filings, and annual business reports—is clearly ill‑suited to the online platform sector; with hundreds of thousands or even millions of drivers involved, such manual processes yield low efficiency.
2. Issuing invoices for online freight‑transport services remains challenging. According to Announcement No. 55 and Tax Administration Letter [2019] No. 405, online freight‑transport platform operators may, on behalf of freight carriers, apply to the competent tax authorities for the issuance of special VAT invoices. However, two practical obstacles persist. First, the bulk‑summary method cannot be used for issuing such special VAT invoices. For large‑scale platforms with millions of active users, the volume of invoices to be issued is enormous, placing an unsustainable burden on the designated service windows. Second, Announcement No. 55 stipulates that freight carriers requesting the issuance of special VAT invoices must first obtain temporary tax registration. If hundreds of thousands or even millions of carriers requiring invoice issuance were to undergo temporary tax registration en masse, this could temporarily impose a substantial additional load on the tax information system and slow down its overall performance. Moreover, frequent temporary tax registrations would generate a large backlog of data and records in the tax information system, difficult to consolidate, thereby imposing a significant administrative burden on tax registration management.
If freight carriers are required to apply for and issue VAT invoices themselves, in addition to registering as market entities or obtaining temporary tax registration, they would also need to be issued a tax‑UKey for each driver, which poses significant operational challenges. Moreover, an individual carrier may accept orders and transport goods across multiple online freight‑platforms, necessitating invoice applications with tax authorities in several jurisdictions; this makes it difficult to centrally manage and use the tax‑UKeys. Alternatively, if freight carriers are permitted to apply, in their capacity as individuals, for the issuance of standard VAT invoices on their behalf, the VAT paid cannot be credited against input tax. The resulting additional tax burden would have to be borne entirely by the online freight‑platform operators. Given the industry’s low gross margins, this could further increase the tax burden on such platforms and hinder the development of a robust VAT credit chain within the online freight sector.
3. Challenges faced by platform-based operators in filing and paying taxes.
(1) Value-added tax. Under the VAT threshold policy, if an individual continuously engages in business activities, has completed tax registration, and opts for periodic tax payment while fulfilling the obligation to file and pay taxes on a regular basis, they may, as prescribed, benefit from the exemption applicable to small-scale taxpayers whose monthly sales fall below the threshold. Conversely, if an individual does not frequently engage in taxable transactions—such as failing to register for tax purposes or choosing only per‑transaction taxation—they should, in accordance with the relevant regulations, avail themselves of the per‑transaction threshold exemption. At present, the main issue is that a large number of individual freight‑transport drivers operating on online freight‑transport platforms are scattered across the country, regularly carrying out taxable activities; yet most have not registered as market entities, thereby being unable to access the VAT‑related tax and fee preferential policies.
(2) Corporate Income Tax. Under China’s corporate income tax regime, online platform enterprises are permitted to claim pre‑tax deductions based on receipt vouchers or internal accounting documents. This arrangement has, to a certain extent, addressed the challenge faced by online freight‑transport platforms in obtaining official invoices from a large number of individual freight‑driver contractors, thereby facilitating their ability to deduct such expenses for corporate income tax purposes. However, the current corporate income tax regulations only require that receipt vouchers clearly indicate the name of the payee and the nature of the expenditure, while stipulating that the preparation and use of internal vouchers must comply with relevant national accounting laws and regulations. By contrast, no specific requirements are set forth regarding the format or types of receipt vouchers and internal vouchers, which poses significant difficulties for tax authorities in verifying the authenticity and compliance of pre‑tax deduction documentation.
(3) Personal income tax. In practice, there remains considerable ambiguity regarding the taxation of freight‑transport drivers. Issues such as determining the nature of income for unregistered self‑employed individuals engaged in freight transport and establishing the applicable taxable income rate for the freight‑transport sector continue to give rise to inconsistent policy implementation across different localities.
(II) Risks in Tax Administration and Supervision
1. The risk of tax revenue loss. Due to the large and highly fragmented number of freight‑transport drivers on online freight‑transport platforms, these drivers are typically not classified as fixed business entities under tax law. Consequently, when such platforms procure labor or services from these drivers, they often struggle to obtain compliant invoices, leaving their ability to claim input VAT credits and substantiate pre‑tax deductions for income‑tax purposes uncertain. To reduce their corporate income‑tax burden, some online freight‑transport platform operators aggregate scattered tax sources nationwide and arrange for local agencies to issue invoices on their behalf, using these invoices as documentation for recording income‑tax expenses. This practice creates the potential for overstating costs. Furthermore, certain platforms fail to properly withhold and remit individual income tax, thereby creating loopholes in the administration of individual income tax for freight‑transport drivers.
2. The risk of issuing false VAT invoices. Because the business activities of the two parties on online freight‑transport platforms may take place across the country, some platform operators in practice inflate transaction volumes or even fabricate transactions altogether to issue invoices to third parties, thereby engaging in the issuance of fictitious invoices for illicit gain. In particular, the widespread occurrence of “both ends outside the local jurisdiction”—where neither the place of sale nor the settlement location is within the local area—makes it extremely difficult to verify the authenticity of a company’s operations. With relatively limited information‑based oversight tools, tax authorities may face gaps in monitoring the genuineness of ordinary online freight‑transport enterprises’ business activities.
02 The Impact of Fair Competition Review on Online Goods
The promulgation of this “Regulation on Fair Competition Review” will have a profound impact on the online freight industry:
First, this will compel existing local tax policies to phase out, ultimately fostering fair competition and accelerating the industry’s localization. For example, in light of integrated multimodal transport data management and supply-chain security concerns, the sector is likely to see state-owned enterprises—particularly those affiliated with central or local SOEs—step in to oversee operations through their supply-chain or IT subsidiaries. This could give rise to a new landscape: each province would have “one provincial-level regulatory platform, three to five settlement platforms, and a cohort of compliant online freight‑transport platforms,” thereby driving the industry toward greater scale and standardization. In turn, this approach would further unlock the industrial value of logistics‑data as a key factor of production—precisely the path to the long-term sustainable development of online freight transportation.
Second, certain local tax‑incentive policies that logistics enterprises, including online freight platforms, have previously enjoyed or are currently benefiting from are set to be affected. According to reports, since the beginning of this year, numerous local governments nationwide have responded to policy directives by halting tax rebates and undertaking a comprehensive review and elimination of illegal tax incentives and fiscal subsidies. For online freight platforms that rely on such tax‑rebate subsidies, this represents a significant blow. For example, a logistics company in Jiangsu was required to repay RMB 24 million after receiving government subsidies but failing to meet the agreed‑upon performance targets.
According to reports from relevant media, tax-related investment‑attraction policies have now been effectively suspended; no new incentive or subsidy measures will be promised, and even previously committed measures have been put on hold. All of this may be linked to the State Council’s “Regulations on Fair Competition Review,” which came into force on August 1. Under these regulations, tax incentives and fiscal subsidies at all levels are subject to comprehensive review.
According to Article 10 of the Regulations on Fair Competition Review, tax incentives and fiscal subsidies at all levels are explicitly included within the scope of review.
(1) Granting tax incentives to specific operators;
(2) Granting specific operators selective and differentiated fiscal rewards or subsidies;
(3) Granting specific operators preferential treatment in areas such as access to production factors, administrative and public service charges, government funds, and social insurance contributions;
(4) Other matters that affect production and operating costs.
As the foregoing indicates, the policy stipulates that no selective or differentiated fiscal incentives or subsidies may be granted to specific operators, nor may tax preferences be extended to them. According to information from Wanlian Network, many investment‑attraction initiatives rely on negotiations between prospective resident enterprises and local government authorities, leveraging preferential measures such as核定征收 (fixed‑rate taxation) and fiscal subsidies to facilitate company establishment. For numerous cities, tax incentives and subsidies have long served as powerful tools for attracting investment; the promulgation of this regulation is set to reshape investment‑attraction strategies and corporate location decisions.
Take the online freight‑transportation sector as an example: this industry places great emphasis on tax havens and regions offering generous tax incentives. Indeed, many online freight‑transport companies even choose their operating locations based on the specific incentive packages rolled out by local governments, in order to align with favorable tax policies. For instance, at one point Guangxi was particularly favored, prompting a wave of firms to flock there for expansion. At the beginning of this year, the “2024 Policy List for High‑Quality Industrial Development of the Inner Mongolia Autonomous Region” was unveiled, providing substantial support, which again drew numerous enterprises to establish new subsidiaries in Inner Mongolia. Later, with the introduction of complementary policies in Tianjin, yet more online freight‑transport platforms set up branch offices in the city. After all, businesses are profit‑driven; the tax breaks, reductions, halved rates, and tax rebates offered by local governments can indeed help companies significantly cut their operating costs.
However, against the backdrop of the new regulations’ implementation, many localities have already begun to review and phase out preferential policies. For example:
Shanghai has issued the “Twenty Measures” List of Rectification Tasks for Investment Promotion, mandating the immediate elimination of industrial support policies tied to tax revenues and a comprehensive ban on investment‑attraction practices that rely on “tax incentive policies.” Jiangxi plans to fully phase out, by 2025, all policies that allow local governments to retain the full amount of fiscal revenue or return incremental revenue to designated functional zones—such as development zones, new urban areas, and scenic spots—as well as to specific industries and enterprises. Zhejiang requires the gradual dismantling of subsidies and revenue‑return mechanisms that unduly interfere with market dynamics or are linked to tax and fee income. Even Horgos, once known as a “tax haven,” has retained only the “five exemptions and five halvings” policy amid its tax‑incentive overhaul.
Despite the series of supportive policies issued by the state to promote online freight‑transport enterprises, the inherent limitations of the logistics and transportation sector have prevented the establishment of a sound input‑tax credit chain. Consequently, the issue of high tax burdens in the industry remains unresolved, with the sector currently confronting the following practical challenges:
First is the issue of input VAT credit for refined petroleum products. At present, online freight enterprises typically claim input VAT credits for refined oil by purchasing fuel cards in the company’s name and allocating them to individual drivers on a per‑order basis for actual transportation. However, due to factors such as the diversity of road transport routes, individual drivers’ sensitivity to diesel prices, and the geographic distribution of gas stations, it is difficult to impose strict controls on the use of these fuel cards at designated stations by individual drivers, resulting in an inability to secure sufficient sources of input VAT credit in day-to-day operations.
Second, there is the issue of input VAT credit for road and bridge tolls. According to Document No. 90 [2017] issued by the Ministry of Finance and the State Taxation Administration, general VAT taxpayers may deduct the input VAT on road, bridge, and gate tolls based either on the VAT amount indicated on the invoice or on the tax rate specified therein. However, under the current VAT deduction rules, fiscal receipts issued for government‑repaid toll roads are not eligible for such credit. According to the “2021 National Toll Road Statistical Bulletin,” at the end of 2021, the total length of government‑repaid toll roads stood at 86,000 kilometers, including 68,600 kilometers of expressways. Government‑repaid expressways accounted for 42.6% of the total toll‑road expressway mileage, meaning that nearly half of the tolls collected on these expressways cannot be used to offset input VAT. Moreover, the mismatch between toll invoices and transport‑related information further complicates the implementation of the deduction process.
Third, there is the issue of insufficient input tax credit. Tax policy explicitly stipulates that only expenses incurred by the enterprise itself in transporting goods are eligible for input tax deduction. Under the business model of online freight transportation, the actual carriers are individual drivers and other independent transport providers, which means that the maintenance, depreciation, and insurance costs associated with the industry’s most significant asset—transport vehicles—are not deductible. Meanwhile, the primary operating expenses recorded on the books of online freight enterprises—such as labor, rent, and travel expenses—are insufficient to generate a sufficient amount of input tax credits.
Fourth, there is the challenge of implementing invoice‑issuing on behalf of others. According to Tax Administration Letter No. 405 [2019], online freight‑transport enterprises may issue special VAT invoices at a 3% rate for eligible small‑scale taxpayers in the cargo‑transport sector. However, in practice, regional implementation varies significantly with respect to scheduling, specific procedures, and limits on invoice issuance. Moreover, such small‑scale taxpayers must also meet additional eligibility requirements, including having completed tax registration and, for vehicles weighing 4.5 tonnes or more, holding both a Road Transport Business License and a Road Transport Permit. Given the current industry landscape—where individual drivers account for over 90% of total transport capacity—the administrative burden and associated costs of providing these services remain relatively high.
04 Optimization Suggestions
In June 2024, the State Council issued the Regulations on Fair Competition Review, explicitly bringing local tax incentives and fiscal subsidies within the scope of review. Under the new regulations, many regions have already begun to overhaul their preferential policies. For online freight enterprises that have long relied on tax havens and local tax incentives to reduce operating costs, this development will have a significant impact, further highlighting the issue of high tax burdens. Accordingly, there is an urgent need to optimize the VAT credit chain to fundamentally alleviate the industry’s persistently high tax burden and insufficient profitability. Specific recommendations include:
First, the scope of input VAT credit has been expanded. For online freight enterprises that have established and perfected information systems, provided that the tax authorities can, through these systems, accurately verify business sources, order contracts, transportation routes, payment vouchers, bank statements, and other relevant transaction data, such enterprises are permitted to aggregate, on a monthly basis, the freight charges paid by the online freight platform to individual carriers as the basis for input tax credit, and to claim input tax deductions in accordance with prescribed standards, thereby achieving “tax administration based on data.”
Second, the VAT input‑tax credit rate should be increased. Government‑funded toll roads that issue fiscal receipts should be eligible for input‑tax deduction, further expanding the scope of deductible road and bridge fees. All such fees, including those supported by fiscal receipts, would be uniformly subject to an input‑tax credit at a rate of, for example, 9%.
Third, we will expand the scope and increase the deduction rate for income tax. We will encourage online freight enterprises to ramp up their R&D investments, promote the establishment of comprehensive management information systems that cover the entire process—from order acceptance to fund payment and settlement—and further raise the additional deduction rate for their R&D expenditures. In light of the rapid growth of China’s new‑energy vehicle sector, we will extend VAT input‑tax credit eligibility to include expenses such as electricity and gas‑refueling costs. Drawing on the treatment accorded to “car‑owned carriers,” we will also bring routine vehicle maintenance costs—such as servicing and insurance—within the scope of input‑tax deductions for the online freight industry, thereby further streamlining the tax‑deduction chain.
(All authors are affiliated with China Railway Materials Corporation.)
