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Opinion
As China tightens the fiscal net, it must strike a fine balance
While the central government is cracking down on tax evasion, provincial governments are scrambling for cash in ways that can be destructive
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Michael Han is assistant president and Shanghai general manager at Yuepu Technology Group.
The National Audit Office has accused Bank of China of dodging taxes. In its annual report, the audit office revealed that the state-owned commercial bank had used two of its subsidiaries to repackage 11 private equity funds as public investment vehicles, exploiting a regulatory tax exemption to evade 2.37 billion yuan (US$348.8 million) in taxes.
This is not an isolated case. It sits at the top of a much wider pattern. Look to the other end of the state enterprise hierarchy and you find Heilongjiang Agriculture Co. Ltd., commonly known as Beidahuang. This sprawling agribusiness conglomerate, controlled by the Ministry of Finance, recently disclosed a retroactive bill for back taxes and late fees of more than 1.4 billion yuan. That one blow is larger than the company’s entire profit last year.
And at the far edge of the system, market regulators in Biyang, a low-income county in Henan province, pulled off what independent domestic media called a coordinated roadside inspection. They stopped 21 freight trucks between July last year and January this year, holding them for fine revenue and auctioning off some of the goods they were carrying.
Three cases, one cause. The Chinese state seems to be running short of money, with a structural revenue shortfall apparently deep enough to force an unprecedented tightening of the fiscal net. The pressure surfaces in two very different forms: a methodical recapture of wealth at the centre and an improvised scramble for cash at the frontier.
The tightening at the top appears to be part of a broader project of building state capacity over the long run. The roll-out of Phase IV of the Golden Tax System, an advanced tax administration platform, reflects a decade-long effort by the central government to strengthen the state and to curb failures of institutional compliance.
However, the sudden public exposure of enforcement actions worth billions of yuan against powerful state institutions suggests that immediate fiscal necessity is now accelerating these regulatory ambitions.
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