Did Vanke make its coin by avoiding tax?
45 Chinese property developers, including major players such as Agile Property, Soho China, and China Vanke, have failed to pay at least RMB 3.8 trillion in taxes between 2005 and 2012 according to report on Sunday by CCTV.
The report by China’s national television broadcaster contends that the real estate developers have been avoiding the country’s Land Appreciation Tax (LAT), which should be paid to local governments based on the net gain the developers derive from selling the rights to use state-owned land and the buildings constructed on the land.
Tax rates start at 30 percent and can go up to 60 percent.
What the Developers May Owe
CCTV relied on Li Jinsong, a tax expert with Beijing Yitong law firm, to look into the difference between what the developers had paid and what the law required, and found that, while RMB 800 billion had been settled with local governments, the full bill to the real estate companies should be RMB 4.6 trillion. A shortfall of more than 80 percent.
The table below lists the ten developers that owe the most tax according to CCTV
The Land Appreciation Tax was put in place in 1994 to limit the potential windfalls to real estate developers from selling off assets that they had acquired from the state.
Is Tax Being Evaded, or Just Postponed?
A report in Bloomberg pointed out that some industry analysts believed that the liabilities of real estate firms are hard to determine, and may be open to some interpretation in China, especially if the developers have good relations with local governments.
“The TV program ignored the dynamics between developers and local governments, which often allow developers to pay LAT over an extended period of time to incentivize the developers to buy more land,” Credit Suisse’s Jinsong Du commented in a message to investors today that was cited in the Bloomberg story.
Huayuan CEO Threatens to Sue CCTV
Ren should consider if that hair is actionable.
At least one real estate executive is certain that CCTV’s tax calculations are off; Ren Zhiqiang, CEO of Beijing Huayuan Real Estate is threatening to sue the broadcaster over alleged inaccuracies in the report.
A story in today’s South China Morning Post found that Ren, who once famously instructed people who felt pressured by China’s sky-rocketing home prices to “move back to the countryside,” had taken to his Weibo microblog to denounce CCTV, after the report said that Huayuan owed RMB 54.9 billion in unpaid taxes.
“I am looking into the matter of publicly suing CCTV,” Ren announced to his 16 million followers. “They don’t report on matters regarding people’s safety in a timely manner, but make an effort to create rumours and undermine the reputation of companies and industries.”
Real Estate Report the Latest of CCTV Exposés
The high cost of real estate is a major consumer concern in China, and CCTV has made business exposes, particularly of the consumer protection variety, a mainstay of its reporting in recent years.
Last month a CCTV report on Starbucks received attention worldwide for accusing the coffee chain of gouging Chinese customers by charging them more for their cappuccino than it charged in other markets.
The state-run broadcaster has also gone after Apple Computer for discriminating against Chinese clients in its customer service policies, and force an apology from Korea’s Samsung after it reported on flaws in two of the company’s smartphones.
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