China's tax authorities have intensified scrutiny on the medical device sector, launching a campaign against widespread invoice fraud and fabricated transactions. On July 28, 2026, the State Administration of Taxation reported that it had investigated 3,611 medical device distribution companies, recovering 5.9 billion yuan in back taxes and penalties. This crackdown is part of a broader effort to address "invoice-based economic activity," a term used to describe the creation of fake invoices through shell companies to inflate revenues and evade taxes.
The focus on medical device firms is driven by the practice of "commission-driven sales," where companies use inflated invoices to disguise kickbacks, illegal rebates, and the distribution of substandard or unregistered products. Wang Daoshu, Deputy Director of the State Administration of Taxation, explained that the campaign targets high-risk sectors, including medical device distribution, to address these fraudulent activities. He noted that tax authorities are working with other agencies to identify shell companies, which often have no real employees, no offices, and no actual business operations.
These shell firms are used to generate fake invoices, artificially increasing the number of transaction intermediaries and inflating company revenues. In June 2026, 14 government agencies, including the National Health Commission and the State Administration of Taxation, jointly issued guidelines to combat tax evasion and invoice fraud in the medical and pharmaceutical sectors. This has led to a series of penalties and public disclosures across various provinces, including Liaoning and Guizhou.
In Guiyang, the local tax authority announced on July 24 that it had fined ten medical device companies for issuing fraudulent VAT invoices. Nine firms were each fined 500,000 yuan, while one was fined 300,000 yuan. In Liaoning, the provincial medical supply procurement network flagged three companies, including Shenyang Oujina Pharmaceutical Co., Ltd., for severe violations. An investigation by the National Healthcare Security Administration found that Oujina had obtained 2,083 false VAT invoices from 40 shell companies between 2017 and 2024, totaling 189 million yuan in inflated costs. These shell companies, most with just 0-3 employees, were created to artificially raise operating expenses, which then drove up drug prices for patients.
Oujina was fined 35.16 million yuan by tax authorities on March 31. Despite a proposed corrective plan from the Liaoning Medical Security Bureau, the company refused to comply, leading to a top-tier "particularly severe breach of trust" designation that lasts three years. As a result, its products, including the widely used aspirin enteric-coated tablets, have been banned from the national market and delisted from Liaoning's procurement system.
Wang Daoshu emphasized that strengthening tax compliance is essential for creating a fair competitive environment and preventing the "bad money from driving out the good." He stated that ensuring companies pay their fair share of taxes is a fundamental step in regulating market behavior and fostering long-term, high-quality economic development.
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