October 4, 2018 / 3:55 AM / 12 days ago

Breakingviews - Fan Bingbing stars in a tax coming-of-age tale

HONG KONG (Reuters Breakingviews) - Fan Bingbing is starring in a Chinese coming-of-age tax tale. Beijing authorities charged the popular actress a whopping $129 million in fines and overdue taxes for concealing past dues. Her months-long disappearance has been a gripping saga, but also feeds into a bigger story.

71st Cannes Film Festival - Screening of the film "Ash Is Purest White" (Jiang hu er nv) in competition - Red Carpet Arrivals - Cannes, France, May 11, 2018. Fan Bingbing poses. REUTERS/Stephane Mahe

The drama started in May, when a former China Central Television host was widely reported to have published pictures that purported to show evidence of Fan’s tax evasion. She later disappeared from public view for months, returning to the spotlight this week to credit the Communist Party for her success and apologize for tax-related transgressions.

Initial allegations concerned so-called “yin-yang” contracts, where studios and actors present one compensation deal to tax authorities while secretly arranging another, more lucrative, one. Movie industry cheats have been given until the end of the year to come clean about any misdeeds.

There is a subtler theme in this script about China’s tax code and how it is enforced. In July, for instance, Beijing said it would transfer authority for collecting social security contributions to the country’s tax bureau. The move sparked widespread concern among companies – frequent evaders – that it could cost them more. Nomura analysts estimate the decision could shave 2.5 percent off corporate earnings.

Lowering rates and beefing up oversight could be a good solution elsewhere in the system, too. Nearly half of China’s tax take comes from value-added and corporate income levies, according to an IMF report, in part because they are easier to collect. Personal income taxes, by contrast, generate only about 5 percent of overall revenue. In rich countries, the proportion is closer to a quarter.

New rules mean only about one in seven members of China’s urban workforce will pay any personal income tax, down from nearly half. The ranks of the country’s wealthy increased nine-fold in the decade to 2016, according to consultancy Bain and China Merchants Bank. The highest marginal income tax rate is 45 percent on anything over 80,000 yuan a month, a level that can inspire avoidance, especially if enforcement isn’t robust. Having to think hard about such issues suggests Fan Binging may have inspired a marquee moment for China.

Breakingviews

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