China’s tech crackdown: live-streaming e-commerce stars get a reality check from the taxman
- The implications of this tax-focused campaign on the live-streaming sector could be huge for the world’s biggest e-commerce market
- Chinese live-streaming stars Zhu Chenhui and Lin Shanshan have become the unofficial poster girls of this new crackdown
Zhu Chenhui, known online as Xueli Cherie, and Lin Shanshan have now become the unofficial poster girls of this new campaign, which targets the booming live-streaming segment of China’s vast e-commerce market, where there is a spotty track record of compliance with China’s tax laws and regulations. Hangzhou’s tax authority imposed a 65.5 million yuan (US$10.2 million) fine on Zhu, while Lin received a 27.7 million yuan penalty.
“[Tax avoidance] is very common not only in the live-streaming industry, but also in other high-income industries,” said Wang Yang, a lawyer at Beijing-based Yingke Law Firm. “If you need to pay 10 million yuan or even 100 million yuan in taxes, you would start thinking about different ways to pay less tax.”
Setting up sole proprietorships to reduce tax is a common tax evasion strategy used in China’s entertainment and live-streaming industries, according to three lawyers interviewed by the South China Morning Post. Individuals face a tax rate of up to 45 per cent for personal wages and labour remuneration, while the highest tax rate for business income that a person gained through sole proprietorships is 35 per cent.
Lin, with 9.6 million followers on Weibo, used a similar method to evade payment of 13.1 million yuan in taxes, the tax authority said.
China’s policy on assessment and levy of tax generated by business income has typically been “abused” by live-streamers and television stars to cut their taxes, according to Cui Yanshuang, a partner at Shanghai-based boutique law firm RICC & CO. She said this policy was originally established so that enterprises and individuals can pay a certain amount of tax for business income when there are no clear accounting books available.
“In many places, this policy has become a way to reduce tax, which was not what it was originally intended for,” Cui said.
The tightened enforcement of tax laws is expected to increase the cost for live-streamers, according to another Shanghai-based lawyer, who asked to remain anonymous. She said these live-streaming stars may ask for more payment from companies or they will not be able to provide discounts to consumers for the goods they pitch online.
The lawyer said top-tier live-streamers, for example, have the ability to negotiate their price. She added that the case of Zhu and Lin “sent a warning” that tax rectification looms for the whole industry.
For smaller live-streamers, however, the impact of this crackdown could be limited. “I think [tax avoidance] is common among live-streamers who have made a name for themselves,” said a live-streamer surnamed Zheng based in Yiwu City in Zhejiang. “But for live-streamers like us, we don’t need to do that.”