By Ryan Yan

There have been several judicial cases where the second paragraph of Article 45 of the Administrative Compulsion Law of the People’s Republic of China (hereinafter referred to as the "Administrative Compulsion Law"), which stipulates that "the amount of additional fines or late payment penalty shall not exceed the amount of the monetary payment obligation," has been cited to argue that although Article 32 of the Tax Collection and Administration Law of the People's Republic of China (2015 Revision) (hereinafter referred to as the "Tax Collection and Administration Law") prescribes that a late payment penalty of 0.05% per day shall be charged based on the amount of tax owned¹, the late payment penalty should be limited to a maximum of one time the overdue tax amount². At the same time, there are cases advocating the opposite view³. These conflicting cases have led to confusion regarding the distinction of the late payment penalty under the two different laws.

The late payment penalty mentioned in Article 32 of the Tax Collection and Administration Law and that referred to in the second paragraph of Article 45 of the Administrative Compulsion Law are fundamentally different. This article will first analyze the essence of the two penalties from the perspectives of their legal foundations, application stages, legal functions and calculation bases. Then, it will provide the author’s view on recent judicial practices, followed by an in-depth analysis of the late payment penalty under the Administrative Compulsion Law. Finally, the dangers of confusing the two types of late payment penalty will be highlighted at the end.

1.Article 32 of the Tax Collection Administration Law of the People's Republic of China (2015 Amendment): “Where a taxpayer fails to pay taxes or a withholding agent fails to remit taxes within a prescribed time limit, the tax authority shall, in addition to ordering the taxpayer or withholding agent to pay or remit the taxes within a specified time limit, impose a late payment penalty at the rate of 0.05% per day of the amount of taxes in arrears from the date the tax payment is overdue.”

2.Refer to the case of the Miyi County Tax Service of the State Taxation Administration v. a Mining Limited Company in Panzhihua City regarding a bankruptcy creditor confirmation dispute [(2024) Chuan 3402 Min Chu 413, Judgment Date: March 11, 2024, Court: Hui Li People's Court], the case of the a Nanjing District Tax Service of the State Administration of Taxation v. Nanjing company regarding a bankruptcy creditor confirmation dispute [Court: Nanjing Intermediate People's Court, Jiangsu Province, Case No. (2023) Su 01 Min Zhong 6513, Cause: Bankruptcy creditor confirmation dispute, Judgment Date: July 25, 2023], and the case of Jinan Intermediate People's Court in a bankruptcy creditor confirmation dispute [(2019) Lu 01 Min Zhong 4926].

3.Refer to the case of Li Cuiping v. Beijing Haidian District Tax Service of the State Taxation Administration and its Sixth Taxation Office regarding the collection of taxes and administrative reconsideration [(2022-05-24 | Beijing First Intermediate People's Court | Second Instance | (2022) Jing 01 Xing Zhong 207)], the case of Shenzhen High-Tech Zone Development and Construction Company v. Shenzhen Nanshan District Local Tax Service regarding an appeal on tax administrative enforcement measures [(2014) Shen Zhong Fa Xing Zhong Zi 196], and the case of Hainan Yake Film and Television Program Production Co., Ltd. v. First Inspection Bureau of Hainan Provincial Local Tax Service concerning other administrative actions [(2017) Qiong 0106 Xing Chu 2].

1. The Essence of the Two Late Payment Penalties

1.1 Different Legal Foundations

The late payment penalty under the Tax Collection and Administration Law[ Administrative Compulsion Law of the People’s Republic of China, Chapter 4 Administrative Enforcement Procedures of Administrative Authorities, Section 2 Execution of Monetary Payment Obligations, Article 45, Paragraph 1: “Where the administrative authority makes an administrative decision imposing a monetary payment obligation in accordance with the law, and the party fails to perform within the prescribed time, the administrative authority may impose additional fines or a late payment penalty in accordance with the law. The standards for such fines or penalties must be communicated to the party.” Paragraph 2: "The amount of the additional fine or late payment penalty shall not exceed the amount of the monetary payment obligation."] is directly based on legal provisions and arises from the failure to fulfill legal obligations. According to Article 25, Paragraph 1 of the Tax Collection and Administration Law, "taxpayers must, in accordance with the provisions of laws, administrative regulations, or tax authorities’ regulations, submit tax declarations, accounting statements, and other required tax materials," tax payment is a legal obligation that taxpayers should voluntarily fulfill. Failure to comply with the law will trigger the "late payment penalty" as stipulated in Article 32 of the Tax Collection and Administration Law.

The late payment penalty mentioned in the Administrative Compulsion Law is part of administrative enforcement and arises from failure to comply with administrative decisions. As Professor Ying Songnian pointed out in his article "Administrative Compulsory Execution," "the refusal to fulfill administrative obligations is the premise of administrative compulsory execution. However, the legal foundation for the obligation that gives rise to administrative compulsory execution has been long debated. Historically, legal systems of some countries have advocated both administrative decisions and legal provisions as the foundation of administrative enforcement. Recently, the trend in administrative compulsory execution leans toward basing it solely on administrative decisions, no longer directly on legal provisions." [ Ying Songnian: 'Administrative Compulsory Enforcement', Chinese Journal of Law, 1998, Issue 3.] Furthermore, Paragraph 3, Article 2 of the Administrative Compulsion Law provides that "administrative compulsory execution refers to the act of an administrative authority or a people's court upon application, forcibly enforcing the obligations of a citizen, legal entity, or other organization that fails to comply with an administrative decision." Thus, in China, administrative compulsory execution is based on administrative decisions, arising from failure to comply with such decisions.

1.2 Different Stages

The two types of late payment penalties occur at different stages and are presented in different forms of documentation.

The late payment penalty under the Tax Collection and Administration Law is an administrative decision, it occurs when the party fails to fulfill the legal obligation of tax payment and is presented in the form of the Tax Administrative Decision. According to Article 107 of the Implementation Rules of the Tax Collection and Administration Law (2016 Revision) [State Council Order No. 666], the format of tax documents is prescribed by the State Taxation Administration. These documents include: Tax Enforcement .

Administrative Compulsion Law of the People’s Republic of China, Chapter 4 Administrative Enforcement Procedures of Administrative Authorities, Section 2 Execution of Monetary Payment Obligations, Article 45, Paragraph 1: “Where the administrative authority makes an administrative decision imposing a monetary payment obligation in accordance with the law, and the party fails to perform within the prescribed time, the administrative authority may impose additional fines or a late payment penalty in accordance with the law. The standards for such fines or penalties must be communicated to the party.” Paragraph 2: "The amount of the additional fine or late payment penalty shall not exceed the amount of the monetary payment obligation."

Ying Songnian: 'Administrative Compulsory Enforcement', Chinese Journal of Law, 1998, Issue 3.

by the State Taxation Administration. These documents include: Tax Enforcement Decision, Tax Administrative Decision, Tax Administrative Penalties Decision, etc.[ Article 107 of the Implementation Rules for the Tax Collection and Administration Law of the People's Republic of China (2016 Revision) [State Council Order No. 666] specifies that the format of tax documents shall be established by the State Administration of Taxation. The term "tax documents" as used in these rules includes the following: (I) Tax Matter Notification (II) Rectification Order Notice (III) Tax Preservation Measures Decision (IV) Tax Enforcement Decision (V) Tax Inspection Notice (VI) Tax Administrative Decision (VII) Tax Administrative Penalty Decision (VIII) Administrative Reconsideration Decision (IX) Other Tax Documents] For instance, the Announcement of the State Taxation Administration on Revising Certain Tax Enforcement Documents (2024) [State Taxation Administration Announcement No. 1 of 2024] prescribes the statutory format of Tax Administrative Decision as following: "...you (company) must pay the above taxes and late payment penalties into the treasury within X days from the receipt of this decision, and make the necessary accounting adjustments. If not paid in time, it will be enforced according to Article 40 of the Tax Collection and Administration Law."

The late payment penalty under the Administrative Compulsion Law is a compulsory enforcement decision, it occurs when the party fails to comply with the administrative decision even after being notified and has no legitimate reason. This late payment penalty is presented in the form of the Compulsory Enforcement Decision.

1.3 Different Legal Functions

According to Article 14 of the Tax Administrative Review Rules (2018 Revision) taxation 

Article 107 of the Implementation Rules for the Tax Collection and Administration Law of the People's Republic of China (2016 Revision) [State Council Order No. 666] specifies that the format of tax documents shall be established by the State Administration of Taxation. The term "tax documents" as used in these rules includes the following: (I) Tax Matter Notification (II) Rectification Order Notice (III) Tax Preservation Measures Decision (IV) Tax Enforcement Decision (V) Tax Inspection Notice (VI) Tax Administrative Decision (VII) Tax Administrative Penalty Decision (VIII) Administrative Reconsideration Decision (IX) Other Tax Documents.

Administrative Compulsion Law of the People’s Republic of China, Article 35: “Before making a decision on compulsory enforcement, the administrative authority shall notify the party in advance to fulfill the obligation. The notification shall be made in writing and include the following items: The deadline for fulfilling the obligation; The manner of fulfilling the obligation; Specific amount and payment methods if any monetary payment obligation is involved; The party's right to make a statement and defense in accordance with the law.” Article 36: “Upon receiving the notification, the party has the right to make a statement and defense. The administrative authority shall fully consider the party's opinions, record and review any facts, reasons, and evidence presented by the party. If the facts, reasons, or evidence presented by the party are valid, the administrative authority shall adopt them.” Article 37: “If the party fails to fulfill the administrative decision after receiving the notification and has no valid reason, the administrative authority may make a decision on compulsory enforcement. The decision on compulsory enforcement shall be made in writing and specify: The name and address of the party; The reasons and legal basis for the compulsory enforcement; The method and time of compulsory enforcement; The ways of and deadlines for applying for administrative reconsideration or filing an administrative lawsuit; The name, seal, and date of the administrative authority.

During the notification period, if there is evidence of signs of property being transferred or concealed, the administrative authority may make a decision on immediate compulsory enforcement.”

 Article 14 of the Tax Administrative Reconsideration Rules (2018 Revision) [Order No. 44 of the State Taxation Administration of the People’s Republic of China]: “The administrative reconsideration authority shall accept applications for administrative reconsideration submitted by applicants who are dissatisfied with the following specific administrative actions taken by the tax authorities: (I) Taxation actions, including the determination of taxpayers, taxable subjects, taxable scope, tax reductions, exemptions, refunds, tax credit deductions, applicable tax rates, tax basis, taxation stage, tax periods, tax locations, and tax collection methods, as well as actions such as the collection of taxes, late payment penalties, withholding obligations, and actions conducted by units or individuals entrusted by the tax authorities to withhold, collect, or levy taxes. (II) Administrative licenses and approvals. (III) Invoice management actions, including the sale, collection, and issuance of invoices. (IV) Tax preservation measures and compulsory enforcement actions. (V) Administrative penalties, including: Fines; Confiscation of property and illegal gains; Suspension of export tax .

actions" and "compulsory enforcement actions" are two distinct administrative actions in administrative review, based on the fundamental difference between voluntary and forced tax collection methods. The level of compliance by taxpayers in these two methods is fundamentally different, which leads to distinct procedural differences in their execution.

The late payment penalty under Tax Collection and Administration Law belongs to the "taxation action" category mentioned above, and its function is to encourage taxpayers to voluntarily fulfill their legal obligations. While this late payment penalty has a certain deterrent effect, this method still expects taxpayers to voluntarily comply, aiming to restore or rebuild trust between the taxpayer and the tax authority. It is a natural extension of the tax payment process and does not directly enter the compulsory execution phase.

On the other hand, the late payment penalty under Administrative Compulsion Law belongs to the “compulsory enforcement actions” category, it is part of the forced collection process and functions to compel taxpayers to fulfill the administrative decision. The prerequisite for this forced action is that the taxpayer not only disregards the law but also ignores the warnings and reminders from the tax authority, thus destroying the foundation of trust between the taxpayer and the tax authority. Therefore, the situation of voluntary compliance no longer exists, leading to the only option of forced execution.

1.4 Different Calculation Bases

The late payment penalty under Tax Collection and Administration Law is calculated based on the amount of tax owned, with the standard being a daily interest of 0.05% starting from the day after the tax payment deadline.The late payment penalty under Administrative Compulsion Law is calculated based on the monetary payment obligation of the administrative decision, and the standard is limited to the amount of the monetary payment obligation4, starting from the day the compulsory execution decision is made.

2. Case Analysis

According to publicly available information, only a few courts in the national judicial system considered the two types of late payment penalty the same in nature. In the case " the Miyi County Tax Service of the State Taxation Administration v. a Mining Limited Company in Panzhihua City regarding a bankruptcy creditor confirmation dispute [(2024) Chuan 3402 Min Chu 413], the court's main reasoning was as follows: First, the late payment penalty is an amount charged by the tax authority in addition to the taxpayer's 

rebate rights. (VI) Actions that fail to lawfully perform the following duties: Issuing tax registrations; Issuing tax payment certificates, certificates of tax compliance for outbound business activities; Administrative compensation; Administrative rewards; Other actions of failing to lawfully perform duties. (VII) Qualification recognition actions. (VIII) Actions of not lawfully confirming tax guarantees. (IX) Specific administrative actions in government information disclosure. (X) Tax credit rating actions. (XI) Notifying immigration authorities to restrict exit. (XII) Other specific administrative actions.”

 Article 75 of the Implementing Rules of the Tax Collection and Administration Law of the People's Republic of China (2016 Revision):

The period for the imposition of late payment penalties, as stipulated in Article 32 of the Tax Collection and Administration Law, starts from the day following the expiration of the tax payment deadline as prescribed by laws, administrative regulations, or determined by the tax authorities in accordance with laws and regulations, ends on the actual date of payment or discharge of taxes by the taxpayer or withholding agent.

tax obligations, it constitutes one of the compulsory enforcement measures provided by the Administrative Compulsion Law. Therefore, the provisions of the Administrative Compulsion Law must be applied by the tax authority. Second, the tax collection and management authority must be acted appropriately to avoid undue financial burdens on the taxpayer. Hence, the amount of the late payment penalty added to overdue taxes should not exceed the tax amount itself.Similar rulings, such as those from the Nanjing Intermediate People's Court in Jiangsu Province and the Jinan Intermediate People's Court in Shandong Province, follow similar reasoning.

The core rationale of these rulings is that the late payment penalty, being an additional obligation beyond the tax debt, is viewed as part of the compulsory enforcement process. However, this logic is flawed. Although the late payment penalty in administrative decisions is an additional obligation beyond the tax debt, it does not constitute an enforcement action. As previously stated, during this stage, the tax collection method is See the court's opinion in the case of "Miyi County Tax Service of the State Taxation Administration v. a Mining Limited Company in Panzhihua City regarding a bankruptcy creditor confirmation dispute [(2024) Chuan 3402 Min Chu 413]":

The court stated that "The law stipulates that tax authorities may impose late payment penalties in addition to overdue taxes. Therefore, the late payment penalty is an extra amount added by the tax authority to the taxpayer's tax obligations to urge the taxpayer to fulfill the obligation. According to Paragraph 3, Article 2 of the Administrative Compulsion Law of the People's Republic of China, administrative enforcement refers to the actions taken by administrative agencies, or the actions applied for by administrative agencies to the people's courts, to force individuals, legal persons, or other organizations that fail to fulfill administrative decisions to perform their obligations in accordance with the law. Therefore, imposing a late payment penalty is one of the enforcement actions established by the Administrative Compulsion Law. It is a coercive act by the administrative agency, which places a certain ongoing monetary obligation on the party that fails to fulfill their duties on time, in order to compel them to fulfil their obligations. The imposition of late payment penalties by the tax authority to force taxpayers to fulfill their obligation to pay taxes constitutes an administrative enforcement action by the tax authority. For tax collection, the Tax Collection and Administration Law provides that tax authorities may take actions such as imposing late payment penalties, tax preservation measures, and compulsory enforcement measures. For actions related to administrative enforcement by the tax authorities, unless specifically exempted by law, they must also comply with the provisions of the Administrative Compulsion Law. As a general procedural law governing the establishment and implementation of administrative enforcement by administrative agencies, the Administrative Compulsion Law uniformly regulates administrative enforcement by clearly defining the types, conditions for implementation, and procedures for such actions. Article 45 of the Administrative Compulsion Law of the People's Republic of China states: 'When an administrative agency makes an administrative decision requiring monetary payment, and the party fails to fulfill the obligation on time, the administrative agency may impose fines or late payment penalties in accordance with the law. The standard for imposing fines or late payment penalties must be communicated to the party.' The Tax Collection and Administration Law and its implementation regulations set the start and end dates and calculation standards for the late payment penalty. The Administrative Compulsion Law specifies the restrictive provisions that must be followed by administrative agencies when implementing this action, which must be applied accordingly. Therefore, the imposition of late payment penalties by the tax authority meets the conditions for application under Article 45 of the Administrative Compulsion Law and must comply with the restriction that the penalty amount cannot exceed the amount of the monetary obligation. Furthermore, when implementing tax collection and administration actions, the tax authority must act appropriately. The restriction that late payment penalties must not exceed the amount of monetary obligation ensures a balance between urging the obligor to pay taxes and avoiding an excessive monetary burden on the party. It also ensures that tax authorities actively perform their duties and take other enforcement actions promptly, improving administrative efficiency and aligning with the objectives of tax collection management. Therefore, the amount of the late payment penalty imposed by the tax authority on overdue taxes must not exceed the amount of the taxes due."

still voluntary, with the expectation that the taxpayer will comply voluntarily. Only when the taxpayer refuses to fulfill the monetary obligation specified in the administrative decision will an additional late payment penalty be imposed by a compulsory enforcement decision, and this late payment penalty represents further obligations. This distinction will be elaborated upon in the next section of this article.

Regarding the appropriateness of administrative actions, this is only relevant in discretionary contexts, and not in cases governed by clear legal provisions. The two types of late payment penalty are explicitly mandated by Article 32 of the Tax Collection and Administration Law and Article 45 of the Administrative Compulsion Law respectively, leaving no room for discretion. Therefore, any discussion of the appropriateness of administrative actions, divorced from the clear legal requirements, undermines the principle of tax legality.

3. Additional Monetary Payment Obligation

3.1 The Interchangeability of Fine and Late Payment Penalty in the Administrative Compulsion Law

The 'late payment penalty' and 'fine' as referred to in Article 45 of the Administrative Compulsion Law are essentially the same in nature, both representing an additional monetary obligation. A review of all the provisions in the Administrative Compulsion Law that mention late payment penalties reveals that they always mention fines in conjunction, with the term 'fine or late payment penalty' being consistently used, which indicates their interchangeable nature.

This equivalence in nature between the late payment penalty and fine is significant because it provides a foundation for understanding their roles in administrative enforcement. In particular, the concept of the fine and its subsequent enforcement actions, as outlined in the Administrative Penalty Law, offers useful insight into the late payment penalty under the Administrative Compulsion Law. The following section will examine how fines and additional fines are structured and enforced, helping to clarify the enforcement of late payment penalties.

3.2 The Concept of Additional Fine in the Administrative Penalty Law

Article 72 of the Administrative Penalty Law of the People's Republic of China (2021 Revision) stipulates that if a party fails to pay a fine on time, the administrative authority that issued the administrative penalty decision may impose an additional fine of 3% of the original fine amount per day, but the amount of the additional fine shall not exceed the original fine amount.Furthermore, the Supreme People’s Court's reply regarding .

The application of fines is relatively broad. Both monetary fines and personal penalties may be imposed as either a fixed amount or a daily percentage-based fine. However, in actual administrative enforcement practice, administrative penalties are often imposed as a fixed amount, and additional fines can only be levied as a daily surcharge of 3% of the fine amount. Whether in the administrative decision stage or the compulsory enforcement stage, late payment penalties generally apply to monetary fines and are rarely used in the context of personal penalties.

 Article 72 of the Administrative Penalty Law of the People's Republic of China (2021 Revision)

If the party fails to fulfill the administrative penalty decision within the prescribed period, the administrative 

whether additional fines imposed during the litigation period should be counted ([2005] Xingtazi No. 29) states that "according to the relevant provisions of the Administrative Litigation Law of the People’s Republic of China, the additional fine for failure to fulfill an administrative penalty decision is an enforcement penalty, and should not be counted during the litigation period." Thus, two different types of fines at different stages are involved here. The fine imposed by the administrative penalty decision is part of the decision itself, commonly referred to as the administrative penalty; whereas the additional fine, as an enforcement penalty resulting from failure to fulfill that administrative penalty decision, is a further fine imposed on top of the original fine. This additional fine shall not exceed the amount of the original fine imposed by the administrative penalty decision.

3.3 Late Payment Penalty as an Additional Monetary Payment Obligation under the Administrative Compulsion Law

In the case that the tax authority makes a tax administrative decision in accordance with Article 32 of the Tax Collection Administration Law because a taxpayer fails to pay taxes, or a withholding agent fails to remit taxes within a prescribed period, the monetary payment obligation imposed by this administrative decision includes both the tax owned and the late payment penalty.

When the party concerned fails to perform this monetary payment obligation within the prescribed time, as aforementioned, a compulsory enforcement decision imposing an additional late payment penalty will be made by the administrative authority according to Article 45 of the Administrative Compulsion Law4, which resulting in an additional monetary payment obligation. In this case, two different types of late payment penalty at different stages are involved. The first type of late payment, imposed by the administrative decision, is included in the initial monetary payment obligation together with the tax owned; whereas the second type of late payment penalty, imposed by the compulsory enforcement decision as an additional monetary payment obligation, is a further late payment penalty imposed on top of the initial monetary payment obligation. However, as mentioned earlier, in such cases of compulsory enforcement, there is no longer a foundation of trust between the taxpayer and the tax authority, with the characteristic of one party forcing the other. Therefore, to protect legitimate rights and interests from being excessively violated, the second paragraph of Article 45 of the Administrative Compulsion Law stipulates that the additional fines or late payment penalty shall not exceed the amount of the monetary payment obligation.

authority that made the decision may take the following measures:

(I)If the fine is not paid by the due date, a daily surcharge of 3% of the fine amount will be added, the total amount of the surcharge does not exceed the original fine amount;

(II)In accordance with legal provisions, the seized or detained property may be sold at auction, legally disposed of, or the frozen deposits or remittances may be used to offset the fine;

(III)Other administrative enforcement measures as stipulated by law may be taken;

(IV)The administrative authority may apply to the People's Court for compulsory enforcement in accordance with the provisions of the Administrative Compulsion Law of the People's Republic of China.

If the administrative authority approves a delay or installment payment plan for the fine, the deadline for applying to the People's Court for compulsory enforcement shall be calculated from the end of the delayed or installment payment period.

3.4 Misconception in Legal Academia

There is a misconception in legal academia that the lack of a cap on the late payment penalty under the Tax Collection and Administration Law implies that there is no upper limit on the monetary payment obligation. Consequently, it is mistakenly assumed that the additional late payment penalty under the Administrative Compulsion Law, which calculated based on the monetary payment obligation, likewise has no upper limit. This understanding clearly leads to the erroneous conclusion that the second paragraph of Article 45 of the Administrative Compulsory Law does not apply. 

If the additional late payment penalty under the Administrative Compulsion Law is calculated using the Fixed Penalty Method, the late payment penalty imposed by the administrative decision is clear on the day the compulsory enforcement decision is made, and therefore the amount of monetary payment obligation is likewise clear. In accordance with the second paragraph of Article 45 of the Administrative Compulsion Law, a fixed amount of additional late payment penalty can then be determined within the amount of the monetary payment obligation.

If the additional late payment penalty is calculated using the Percentage-Based Method, the amount of monetary payment obligation increases as the late payment penalty increases. Not until the execution of the compulsory enforcement decision will the late payment penalty attain a fixed amount and will the monetary payment obligation then be determined. Since the additional late payment penalty is determined based on the monetary payment obligation, its amount will likewise only be established upon the execution of the compulsory enforcement decision. 

Depending on the applicable rate of the additional late payment penalty, the taxpayer's actual payment time and the timing of the tax authority's enforcement actions, the additional late payment penalty may or may not exceed the amount of monetary payment obligation. If, at the time of executing the compulsory enforcement decision, the additional late payment penalty calculated exceeds the amount of the monetary payment obligation, the limitation set forth in Article 45, Paragraph 2 of the Administrative Compulsion Law still applies. As the provision does not limit its application to the act of issuing the compulsory enforcement decision, it can also be applied at the execution stage, ensuring that the penalty does not exceed the established monetary obligation.

4. The Dangers of Confusing the Two Types of Late Payment Penalty

4.1 Legal Implication: Confusion in the Application of Article 88 of the Tax Collection and Administration Law of the People's Republic of China (2015 Amendment)

Article 88 of the Tax Collection and Administration Law clearly distinguishes between administrative decisions and compulsory enforcement actions. Specifically, the tax payment and late payment penalty under administrative decisions are subject to an administrative review procedure before litigation; whereas the late payment penalty under compulsory enforcement decisions do not require such a pre-litigation review, and the parties may directly file a lawsuit with the people's court.Therefore, confusing the "late payment penalty" under the Tax Collection and Administration Law with the "late payment penalty" under the Administrative Compulsion Law will inevitably lead to confusion in applying Article 88 of the Tax Collection and Administration Law.

4.2 Rule-of-Law Risks

The "late payment penalty" under the Tax Collection and Administration Law and the "late payment penalty" under the Administrative Compulsion Law play distinct roles at different stages, with self-payment and compulsory payment complementing each other. Confusing these two penalties will result in either an overemphasis on the latter while neglecting the former, or vice versa, both of which would have serious negative consequences for the rule of law.

Overemphasis on the latter (compulsory enforcement): This would transform a clear legal provision into a discretionary decision, weakening the stability and predictability of the legal system. It would also convert voluntary compliance into enforcement, eroding the guiding and educational functions of legal norms and leaving only the coercive function. This would undermine the core self-reporting and self-payment system established by the tax collection and administration system.

Overemphasis on the former (administrative decision): This would lead to the failure to implement the decision, seriously undermining the authority and seriousness of the legal system. For example, if the late payment penalty under Article 32 of the Tax Collection and Administration Law were used as the sole basis for calculating late payment penalties, and the compulsory enforcement procedure were not initiated when it should be, it could result in missed opportunities to recover public funds in time while the taxpayer still has the ability to pay. In extreme cases, this may lead to the inability to recover public funds due to the bankruptcy of the taxpayer.

5. Legislative Aspect

The State Taxation Administration of China has suggested to the National People's Congress that the "late payment penalty" under the current Tax Collection and Administration Law be renamed as "tax interest," as it serves as compensation for the occupation of state tax funds and has an interest-like nature, distinguishing it from the Article 88 of the Tax Collection and Administration Law of the People's Republic of China (2015 Amendment):

Paragraph 1: When a taxpayer, withholding agent, or taxpayer guarantor has a dispute with the tax authority regarding tax matters, they must first pay or deposit the tax and late payment penalty, or provide the corresponding guarantee, in accordance with the tax authority’s tax decision, and then may apply for administrative reconsideration in accordance with the law. If dissatisfied with the administrative reconsideration decision, they may file a lawsuit with the people’s court.

Paragraph 2: If the parties are dissatisfied with the tax authority’s penalty decision, enforcement measures, or tax preservation measures, they may apply for administrative reconsideration in accordance with the law, or they may file a lawsuit with the people’s court.

Paragraph 3: If the parties do not apply for administrative reconsideration or file a lawsuit with the people’s court within the prescribed period, and do not comply with the tax authority's penalty decision, the tax authority that made the penalty decision may adopt the compulsory enforcement measures as provided in Article 40 of this law, or apply to the people’s court for compulsory enforcement.

"late payment penalty" under the Administrative Compulsion Law.However, despite the State Council’s Legal Affairs Office seeking public opinion on the draft of the revised Tax Collection and Administration Law since 2015, there has been no substantial progress.

6. Conclusion

The "late payment penalty" under the Tax Collection and Administration Law and the "late payment penalty" under the Administrative Compulsion Law are based on distinct legal foundations, applied at different stages, and serve different functions, with voluntary compliance and compulsory enforcement complementing to each other. Confusing these two types of late payment penalty leads to serious negative consequences to the rule of law. Judicial authorities should uphold judicial principles, resist those undesirable judicial practices that aim at attracting public attention by creating viral cases.

 Notice from the General Office of the State Taxation Administration on Soliciting Opinions on the Revised Draft of the Tax Collection and Administration Law (Draft for Public Comment) [State Taxation Administration Office Letter [2014] No. 577]

The notice points out that with the formal implementation of the Administrative Compulsion Law in 2012, there exists a connection issue between the "late payment penalty" under the current Tax Collection and Administration Law and the "late payment penalty" under the Administrative Compulsion Law. The "late payment penalty" under the current Tax Collection and Administration Law is of an interest nature and serves as compensation for the occupation of state tax funds. It is automatically added in accordance with tax law provisions when payment is overdue. In contrast, the "late payment penalty" under the Administrative Compulsion Law is a compulsory enforcement measure that is imposed when the party fails to comply with the administrative decision. There is a conflict between the provisions on "late payment penalties" in the current Tax Collection and Administration Law and the Administrative Compulsion Law. To maintain consistency between legal provisions and restore the true nature of the tax late payment penalty, this revision of the law will rename the "tax late payment penalty" to "tax interest." If the taxpayer fails to fulfill the tax payment decision made by the tax authority, the provisions of the Administrative Compulsion Law will apply, and a late payment penalty of 0.5% per day will be imposed.