Tax-shar­ing to spark re­lo­ca­tions

China Daily (Canada) - - FRONT PAGE - By ZHENG YANGPENG zhengyang­peng@ chi­nadaily.com.cn

The re­lo­ca­tion of en­ter­prises within the Bei­jing-Tian­jin-He­bei area will be fa­cil­i­tated by a tax-shar­ing ar­range­ment in­tended to pacify gov­ern­ments that fear los­ing rev­enue when com­pa­nies leave their ju­ris­dic­tions.

The plan, an­nounced by the Min­istry of Fi­nance on Wed­nes­day, will com­pen­sate gov­ern­ments by pro­vid­ing a three-year tran­si­tional pe­riod, dur­ing which the orig­i­nal gov­ern­ment can get 50 per­cent of value-added, cor­po­rate in­come and busi­ness tax pay­ments.

But not all re­lo­cated en­ter­prises in the mega­lopo­lis will be­cov­ered. On­lythose sub­or­di­nate to lo­cal gov­ern­ments’ plans, and ma­jor com­pa­nies that have paid an an­nual av­er­age of 20 mil­lion yuan ($3.2 mil­lion) in the three years prior to the re­lo­ca­tion, will be in­cluded.

If a re­lo­cated en­ter­prise fails to gen­er­ate an­nual tax rev­enue of 20 mil­lion yuan af­ter three years, the 50-50 shar­ing ar­range­ment will be ex­tended for two years.

The plan only cov­ers com­pa­nies that are or­dered to move. Those that re­lo­cate vol­un­tar­ily will be taxed ac­cord­ing to the laws.

The ar­range­ment is an ap­par­ent ef­fort to min­i­mize re­sis­tance from lo­cal gov­ern­ments that worry about the ero­sion of their tax base as ma­jor en­ter­prises in their ju­ris­dic­tion move out. It is also part of the broader strat­egy to in­te­grate the Bei­jingTian­jin-He­bei area, with en­ter­prises that no longer fit a re­gion’s po­si­tion able to move else­where. For ex­am­ple, com­pa­nies deemed un­suited to re­main in Bei­jing could re­lo­cate toHe­bei.

The three re­gions will jointly de­velop the 13th FiveYear Plan (2016-20), a sign of in­creas­ing pol­icy co­or­di­na­tion, the Eco­nomic In­for­ma­tion Daily re­ported.

The “rule-based” tax shar­ing is a de­par­ture from the past, where lo­cal gov­ern­ments ne­go­ti­ated such ar­range­ments on their own, ac­cord­ing to Shi Zheng­wen, a fis­cal and tax law pro­fes­sor at the China Univer­sity of Po­lit­i­cal Science and Law.

A no­table ex­am­ple of the dif­fi­culty of such a move in­volved Bei­jing’s Sta­te­owned steel gi­ant Shougang Group. It took years to per­suade the Bei­jing gov­ern­ment and Shougang em­ploy­ees that oper­a­tions should move to He­bei. It then­tooka­long­timeto set­tle a dis­pute be­tween Bei­jing and He­bei over the di­vi­sion of Shougang’s tax pay­ments.

Shougang’s tax pay­ments ac­counted for 5 per­cent of Bei­jing’s tax rev­enue and about half of the dis­trict’s where it was lo­cated in 2005.

Although the Min­istry of Fi­nance’s ar­range­ment may re­solve the prob­lem, ex­perts still sug­gest the gov­ern­ment should leave re­lo­ca­tion de­ci­sions up to com­pa­nies.

“The gov­ern­ment should re­spect the rules of the mar­ket. There were lots of un­ex­pected prob­lems in­volved in gov­ern­ment-driven re­lo­ca­tion cases. The gov­ern­ment should guide re­lo­ca­tion through in­dus­trial poli­cies and in­fra­struc­ture con­struc­tion,” Shi said.

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