Local Chinese governments have been phasing out taxes since the 1990s
Local governments in China have asked several companies to pay tax debts since the 1990s, underscoring their need for financing in the face of an uneven economic recovery and an ongoing housing slump.
Many listed companies said in a stock exchange in recent months that they had received government demands to pay tens of millions in back taxes and warned investors that this could affect their earnings.
VV Food & Beverage Co. last week it said the brewery was told to pay 85 million yuan ($11.7 million) in revenue it “failed to disclose” for about 15 years starting in 1994. ChinaLin Securities Co., Ningbo Bohui Petrochemical Technology Co., Zangge Mining Co. and PKU HealthCare Corp. issued similar statements.
China’s local governments are facing unprecedented pressure to increase revenue as economic growth slows and the contracting real estate market sends revenue through land sales. Their already high debt stock reduces their ability to grow, forcing the central government to borrow more and provide them with money.
The tax return “may be due to the financial difficulties of local governments,” said Xing Zhaopeng, an analyst at Australia & New Zealand Banking Group. “I think they need some money to pay at the end of the quarter” because regional authorities usually pay contractors for government projects at that time, he added.
Local governments booked less than 5.8 trillion in revenue under the general public budget and the government fund account, which includes taxes and land sales revenue, in the first four months of the year. That number was less than 5.9 trillion yuan in the same period last year, according to data from the Ministry of Finance.
Their spending fell to less than 10 billion yuan from 10.4 billion yuan a year ago.
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