Authorities in cash-strapped Chinese cities are pursuing companies for unpaid taxes dating back several years, and in some cases, decades, as they attempt to address financial deficits exacerbated by the real estate crisis.
Several major listed companies in China have revealed that they have been instructed to settle historical tax obligations, with some stretching as far back as the 1990s. This development has sparked outrage online and further eroded already fragile business confidence.
V V Food & Beverage, the largest soy milk producer in the country, disclosed that one of its subsidiaries was asked to pay 85 million yuan ($11.7 million) in back taxes by the Zhijiang city government in Hubei province. The demand was based on the discovery that the company had failed to file tax returns for 16 years between 1994 and 2009.
Other companies have also faced similar tax demands in recent months, leading to production halts and layoffs due to the inability to cover substantial tax bills and penalties. This crackdown reflects local governments' urgent need to replenish their finances amid mounting financial strain caused by a prolonged property downturn and economic challenges.
Regional authorities traditionally relied on land sales for revenue, but the real estate crisis since 2021 has diminished this income stream. Consequently, local governments have resorted to unconventional measures such as imposing fines for minor violations and cutting subsidies to offset budget shortfalls.
The State Administration of Taxation attempted to allay concerns following the public outcry over the tax crackdown, clarifying that while some companies were under scrutiny for potential tax irregularities, there was no nationwide, industry-specific, or centralized tax inspection campaign underway.
The establishment of 'Police & Taxation Joint Combat Centers' in certain regions has fueled speculation about more aggressive taxation policies in the future. This move, aimed at enhancing collaboration between law enforcement and tax authorities, has raised fears and uncertainties among businesses and the public.
Experts warn that pursuing back taxes from decades ago could have dire consequences, potentially leading to bankruptcies and job losses. The crackdown poses significant risks to businesses already grappling with operational challenges and economic pressures, threatening to dampen investor confidence and exacerbate economic woes.
As Beijing seeks to reassure the private sector amid regulatory crackdowns and pandemic-related disruptions, privately owned companies across various industries have been targeted in the tax probes. The financial impact on companies like V V Food & Beverage and Ningbo Bohui Chemical Technology underscores the potential repercussions of the tax crackdown on corporate profitability and operations.
While the exact financial toll on these companies remains uncertain, the looming threat of substantial fines and penalties could further strain their financial health and viability. The ongoing tax enforcement actions highlight the complex interplay between government revenue needs, regulatory compliance, and business sustainability in China's evolving economic landscape.
