China's film & TV industry ordered to pay back waived taxes for past 3 years

People line up to pay tax in a local tax bureau. Photo: VCG

China has launched a campaign to regulate the payment of taxes within the film and TV industry in the wake of the yin and yang contract scandal involving the country's most successful actress Fan Bingbing.

In a recent notice, the State Administration of Taxation (SAT), China's top tax body, ordered local tax bureaus to inform film and TV companies and high-income individuals to conduct self-examination and self-correction for their own tax status in the past three years and pay back taxes already waived by local governments by the end of this year.

"Those who carefully check and correct their own tax payments and take the initiative to pay back the taxes before the end of December 2018 are exempt from administrative punishment and will not be fined," said the notice.

"Taxpayers who have self-corrected after being reminded by local tax bureaus may be given lighter or less administrative punishment in accordance to the law; if the violations are minor, they may be exempted from administrative punishment," it added.

The notice warned that the authorities would carry out "inspections on film and TV companies and individuals who refused to correct themselves, and deal with them seriously in accordance to the law starting from next March."

Rising anxiety

After the notice was released, it immediately became the focus of discussion.

Worried that they may not have enough money to pay back the taxes, which could force them to suspend production projects, lay off employees, or even file for bankruptcy, some film and TV companies have raised questions over the SAT's tax collection method.

An anonymous investor told China's respected financial magazine Caixin: "It's shocking that we would have to pay back the waived taxes now, which means that the preferential tax exemption policies rolled out by the local government are actually illegal."

In a rare public response, the China Film Directors' Guild, an industry association boasting influential members like director Zhang Yimou and actress Zhao Wei, on Saturday released a statement on its official Weibo account to criticize the new SAT policy.

"If the government vaguely and comprehensively orders film & TV companies to pay back previously waived taxes, such a move may suggest that the studios have committed illegal tax evasion, and local tax bureaus have experienced misconduct," said the association. "This is unfair to the majority of such law-abiding companies, and it will inevitably lead to doubts about the credibility of local governments."

According to Caixin, local governments' preferential tax exemption policies, in essence, are unapproved measures to attract investment.

"In China, only governments in national autonomous regions have the right to adopt such policies," the magazine noted. "Other areas must get approval by the State Council, China's cabinet, before taking any action."

Tax scandal

Over the past few years before the tax storm, Khorgas in Northwest China's Xinjiang Uygur Autonomous Region, Hengdian in East China's Zhejiang Province, Wuxi in East China's Jiangsu Province, and Shanghai's Songjiang District have rolled out preferential tax exemption policies, attracting a large number of investors to register film and TV companies in the areas.

The companies registered in Khorgas, for instance, were exempted from paying any corporate income tax for the first five years' operation.

However, after Cui Yongyuan, a former host of the state broadcaster China Central Television (CCTV), alleged on China's Twitter-like Weibo in May that Fan signed yin yang contracts to mislead tax authorities about how much she had been paid for her role in the film Air Strike, local governments reduced tax subsidies in succession.

An industry insider told Caixin that a company that earns 5 million yuan (US$ 725,252) in annual revenue is expected to see its income tax burden surge to 1.7 million yuan from 180,000 yuan previously.

In October, the state-run Securities Daily reported that over 100 film and TV companies in Khorgas announced to shut down their operations mostly due to tightened policies.

Among those fleeing the remote city were many well-known celebrities like Feng Xiaogang, Zhao Wenzhuo, and Xu Jinglei, who are legal persons or stakeholders of the film production companies.

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