China's State Taxation Administration (STA) has taken a significant step in enforcing compliance by revealing the first tax fraud cases in the burgeoning sectors of new-energy vehicles, lithium-ion batteries, and photovoltaic products. This announcement marks a pivotal move towards ensuring fair business practices within these rapidly growing industries, as reported by the Xinhua News Agency.

In a notable case from Jiangxi Province, Nanshi Lithium Battery New Materials Co was discovered to have improperly classified approximately 6.68 million yuan, or around 920,000 dollars, in wages for non-research and development staff as research expenses from 2021 to 2023. As a result of this misclassification, the company unlawfully claimed additional tax deductions. Authorities have mandated the repayment of 5.72 million yuan in back taxes and penalties, alongside late fees.

Another major case emerged in Shenzhen, Guangdong Province, where a criminal group operated between 2019 and 2022, manipulating 11 new-energy firms to issue fraudulent invoices. This group misrepresented lead-acid batteries as lithium batteries for export, enabling them to fraudulently acquire 149 million yuan in export tax rebates. Following a court ruling in April 2025, the group's leader was sentenced to 12 and a half years in prison, with fines reaching 70 million yuan, while 18 other accomplices received various prison terms ranging from three to 11 and a half years.

The STA has directed businesses that received unwarranted extra deductions for research and development costs to repay the required taxes and fines, as dictated by law. A local court has already reviewed these offenses, holding the culpable individuals accountable and imposing legal repercussions, which highlights the strict regulatory environment being advocated.

An official from the STA emphasized that while China has introduced numerous tax incentives to promote the growth of the 'new three' industries, some companies are exploiting these policies by making fraudulent claims or evading taxes. This abuse is undermining the original intention of encouraging innovation and is distorting the competitive landscape.

The official further noted that such practices are detrimental, as they foster ruthless low-price competition, exacerbate overcapacity, and disrupt the development of a cohesive national market. This not only compromises the benefits intended by the policies but also threatens the integrity of market operations.

Bian Yongzu, the executive deputy editor-in-chief of Modernization of Management magazine, remarked that while favorable tax policies have accelerated growth in emerging sectors, the misuse of these advantages poses risks. It undermines the goal of innovation and could have negative repercussions across the industry.

Bian highlighted that the majority of companies adhere to tax regulations, while those exploiting loopholes gain undue advantages. This distortion harms the principles of fair competition, forcing compliant enterprises into a disadvantaged position and diminishing overall market vitality. To counteract this, he advocates for stringent enforcement and harsh penalties to dissuade violations.

The STA is committed to ensuring that various preferential tax and fee policies are effectively implemented to support business growth. Concurrently, the administration will continue to investigate and penalize illegal activities that disrupt market fairness, thereby maintaining a just and lawful tax environment.

This proactive approach by the STA signals a clear message to businesses operating in the new-energy sectors: adherence to tax regulations is crucial for the sustainability of the industries and the economic health of the country.