China should prioritise firms over revenue amid decades-old tax bills saga: academic
- China’s tax authority had to deny it was launching a national investigation after firms were asked to pay tax bills dating back as far as the 1990s
A denial by China’s tax authority that it would launch a national investigation after several listed firms were asked to pay decades-old overdue taxes underscores public concerns over local government debt woes and weak confidence among businesses, analysts said.
Speculation subsequently arose that some authorities might be looking to punish companies for overdue tax or misconduct amid mounting fiscal stress.
Hua Sheng, a professor with Southeast University, said that the speculation reflected some concerns among businesses, especially in the private sector, over weakening local government finances.
“The current economic and employment pressures are very high. All policies in all regions should be highly consistent with the central government’s spirit,” Hua said on his Weibo social media account on Friday.
“We should not prioritise small profits over disruption of enterprises and markets.”
The State Taxation Administration said on Tuesday that it would continue to improve taxation enforcement, with efforts to be made in enforcement and cracking down on tax evasion.
These cases are routine, lawful, and regulatory duties performed by the tax authority
“The tax department hasn’t carried out national, industry-specific or centralised tax investigations, and there is not such any arrangement for probes going back 20 or 30 years,” the tax authority said.
“These cases are routine, lawful, and regulatory duties performed by the tax authority.”
The statement came after a number of Chinese listed firms said that they had received demands to pay tens of millions in back taxes, forcing some to warn investors the bills could impact their earnings.
VV Food & Beverage said in an exchange filing last week that a previously controlled liquor-making unit was told to pay 85 million yuan (US$11.7 million) on income it had “failed to disclose” for about 15 years starting in 1994.
“In the era of big data, tax evasion and tax avoidance behaviours that may have existed in the past are now easier to detect,” Min Qiurui, a consultant with the Chongqing-based Bi Xin Tian Cheng tax advisory firm, said in a commentary on her firm’s WeChat social media account on Wednesday.
“Companies should consciously abide by tax laws and regulations and conduct risk assessments regularly to avoid tax risks.”
Scholars have called for new sources of income for China’s local governments, which are facing unprecedented pressure to expand revenues because economic growth is slowing and the contracting real estate market has sent income from land sales plunging.
Their already elevated debt stockpile is limiting their ability to leverage up, while the central government has pledged to borrow more and give the funds to local authorities.
The proportion of local government revenue from non-tax income, which includes fines and seized assets, has risen significantly for many local authorities, raising concerns that such revenue growth is a reflection of a deteriorating business environment.
In cash-strapped regions such as Guizhou, Jilin and Yunnan, the proportion of fines and confiscations within their overall fiscal revenues in 2023 grew to more than 4 per cent, according to Hebei Capital Research Association, an institute affiliated with the provincial government.
In the Guangxi Zhuang autonomous region, the proportion was 7.74 per cent, the association said on Wednesday.
S&P Global Ratings expected a lengthy delay to the revenue recovery at local governments in the coming months.
“If China continues to roll out aggressive tax relief programmes to support economic development, or continued property woes further squeeze fiscal resources, local and regional governments’ debt control effort could be compromised. More tail risk would come to light,” the rating agency said last week.
