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Tax evasion investigations drag Chinese entertainment shares down

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HANGZHOU, CHINA: The television industry in China – which is regulated by the State Administration of Radio Film & Television (Sarft) – is going through its own turmoil, regulatory restrictions aside.

Monday saw stock of many media companies involved in production drop between six and 10 per cent. Huayi Brothers Media, Zheijan g Talent Television & Film Co,   Spearhead Integrated Marketing Communication, Huawei Culture Co, Ciwen Media Co – all saw market capitalizations vanish even as the media index fell 1.3 per cent. This is a near four year low.

The reason: the Chinese tax authorities are investigating whether the country’s media and entertainment firms are finding innovative ways to evade taxes, especially as far as payment to top talent is concerned (sounds familiar to us Indians right?)

It all started last week when a former TV host Cui YongYuan posted  screenshots of several employment contracts (with names blacked out) on networking site Sino Weibo. He accused actors of signing dual or ying yang contracts with production studios.  Cui attacked Chinese star Fan Bingbing claiming she was given 10 million yuan (US$1.5 million) according to the contract which was shown to the tax authorities while she had signed another personal agreement wherein she was paid 50 million yuan for the same work.  Fan is based in Wuxi, Jiangsu province province of China and with the social media abuzz, the local tax authorities swing into action, pronouncing that they would investigate the tax evasion charge thoroughly.

Local activists and researchers lauded the move as China has tried to regulate the alleged tax evasion abuse by top actors and talent in the past but has failed. The China Alliance for Radio, Film & Television had issued a circular in 2017 ordering producers to limit actors’ remuneration to no more than 40 per cent of the production costs, and that leading actors compensation should not exceed 70 per cent of total actors’ payments.

The hue and cry around Cui and Fan, lead to a broader call for the Chinese tax authorities to investigate all  media and entertainment firms. Hence, the slump in share prices.

Observers see good  in the tax evasion investigation. “Chinese media shares will be negatively influenced in the short term, but it’s a piece of good news in the medium to long term that film and TV stars will be more compliant about paying taxes and good film and TV producers will stand out,” said a representative of one the Chinese investment banking analysts to China Daily.

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