Stocks fall as TV, film studios to be probed
Shares of China’s media companies slumped on Monday as a result of the Chinese tax authority’s probe of tax evasion within the film and television industry.
An index of major media firms dropped 1.3 percent to a near four-year low on Monday. Huayi Brothers Media Corp, Zhejiang Talent Television and Film Co Ltd and Spearhead Integrated Marketing Communication Group dropped by the daily limit of 10 percent. Huawei Culture Co Ltd fell by 8.78 percent and Ciwen Media Co Ltd by 6.05 percent.
“It’s understandable that actors can earn high salaries, but they should observe the law to pay taxes, or the punishment can be serious,” said Li Shuguang, a law professor at China University of Political Science and Law. “Many Chinese film and TV producers are too dependent on famous actors and directors, which is a big risk for their business development and capital market performance.”
Li added, “The move of China’s tax authority will urge the film and TV industry to be more transparent and compliant, which is good for its healthy development in the long term.”
Wen Hao, chief media analyst at Chinese securities firm TF Securities, said the stock market was weak in May and the beginning of June, so the tax evasion probe extended negative investor sentiment.
“China’s media shares will be negatively influenced in the short term, but it’s a piece of good news in the mediumand long-term that big film and TV stars will be more compliant about paying taxes and good film and TV producers will stand out,” Wen said.
Wen said China has affluent funds and many of them are invested in the film and TV industry, raising payments of actors.
The tax investigation is in response to recent heated online furor that a famous Chinese film star might have evaded paying tax by signing so called yin-yang contracts — one contract sets out agreed payment terms and a second one with a lower figure for the tax authorities to avoid payment of taxes.
Former TV host Cui Yongyuan released screenshots of a document in a Sino Weibo post on Tuesday that appeared to be an actor’s employment contract, accusing an actor of signing two contracts for a single production. The first contract stated payment of 10 million yuan ($1.58 million) and the second stated a 50 million yuan payment.
The State Administration of Taxation has asked the local bureau in Jiangsu province to carry out investigations.
The exorbitant salary of celebrities in China’s entertainment sector has always been a source of public complaints, not only because it reflects the widening wealth gap in society, but also because such income has often been made illegally, through “hidden industry rules”. That’s why the announcement by the State Administration of Taxation that it is conducting a thorough investigation into alleged tax evasion by a famous actor has attracted much attention.
As the studio concerned is registered in Wuxi, Jiangsu province, the local tax authority is conducting the inquiry.
The move comes after two contracts were posted online detailing the terms and conditions for an actor to work on a movie. One was said to be the real contract, and the other with a lower payment and perks was alleged to be for tax purposes. Such “double contracts” have long been used in the industry, the poster claimed.
It will take time for the investigators to find out whether the film star has evaded paying tax, a criminal charge that the studio has denied. But throughout the investigation, the actor will be treated the same as anyone else, the administration said. Since everyone is equal before the law, the star’s celebrity status will not influence the outcome, and if any actions are found to have broken the law, the relevant parties will be punished.
The administration is already looking at tax avoidance in the film industry, and it has said it is strengthening its supervision.
The incident has once again put the spotlight on movie stars and the film industry. For despite the Chinese film industry’s boom in recent years, with its box office set to become the world’s largest, the quality of most movies still leaves a lot to be desired.
The high payments for on-screen talent have been part of this problem, since investors, in order to make profits, tend to rely only on the A-list stars with box office appeal to guarantee a return on their investments. This has created a soaring cycle of higher payments for stars at the cost of the money spent on other aspects of production, such as scriptwriting, production, editing, sound and music.
The fight against unreasonably high payments must continue for the film industry to continue to prosper and yield more quality films. And the scrutiny of contracts and income must be carried out to ensure those in the industry pay tax on their full incomes according to the rules.