From boomtown to crackdown: media firms flee Horgos

Domestic film and TV enterprises that have benefited from tax exemption and reduction policies in Horgos, Northwest China’s Xinjiang Uyghur Autonomous Region, have fled the city in the wake of a tax evasion scandal involving one of the country’s most known movie stars, which resulted in hundreds of millions of dollars in fines.

More than 100 film and TV companies have filed applications to shut down their operations in the city since June, including enterprises with film and TV celebrities as legal persons or shareholders, according to local media outlet ylxw.com.cn.

On August 27 alone, the website noted as many as 25 such closure notifications.

When the city was designated as a Special Economic Zone in 2010, the tax benefits it offered, plus low registration costs, attracted more than 1,600 media firms. The registration cost for a media company could be as low as 10,000 yuan ($1,456), and these companies had five-year tax exemptions, according to Chinese securities industry media outlet stcn.com.

The preferential policy drew an enthusiastic response from film and TV entrepreneurs and celebrities, but it also led to problems with multiple shell companies, tax evasion, and many companies registering at the same address.

What prompted the outflux was the standardization in local policies and the case of Chinese movie star Fan Bingbing, who has been found evading taxes and fined 880 million yuan.

This January, Horgos announced a policy adjustment, under which each company was required to have an actual office and staff in the city. It said that 20 percent of any income tax exemption must be invested locally.

Following the fine imposed on Fan, tax authorities ordered the industry to carry out internal investigations and correct any problems. It also said that any tax that had been evaded must be paid before December 31.

“All companies will treat this kind of notification seriously, and any news of a tax evasion crackdown will be taken as true now,” an anonymous industry insider told the Global Times on Sunday.

“The clear-up of shell companies in Horgos, which were registered for the purpose of tax evasion with no intention of making a contribution, will benefit the local economy and society in the long term.” Zhu Daqi, a professor of tax law at Renmin University of China in Beijing, told the Global Times.

“In general, China will more strictly implement the Taxation Law,” Zhu said.