Internet & Tech

Code red

More companies complain about Chinese taxes

Seagate-w

Making less stuff in China

The science fiction novel Solaris came to a very clear conclusion: it is futile for humans to try to communicate with other species; we will always fail.

Sometimes a bigger issue is communication within our own species, however. Hence the confusion around events at Oracle this month after it fired 200 of its Chinese research and development staff at its Solaris Platform Engineering unit. The Beijing-based employees were quick to protest, believing that they were early victims of the Trump administration’s more protectionist stance (Oracle’s co-CEO Safra Catz has just left the company to join President Trump’s transition team). Sixth Tone says that staff put up banners castigating the American multinational for “moving the labour force to please Trump” and cutting jobs in “cold blood just ahead of the New Year”.

Oracle retorts that it is still investing in China, but focusing on other areas instead.

The world’s largest hard disk producer, Seagate, has just announced job cuts as well, driven by the closure of its Suzhou plant at the cost of 2,200 positions.

But Jiemian.com says that Seagate’s communication team has gone out of its way to make two points about the retrenchment: firstly, that the cuts are part of a 14% reduction in global headcount, and secondly that the firm will continue to invest at its other Chinese plant in Wuxi.

“Seagate is a trapped beast” was the colourful analogy drawn by Jiemian. “It’s struggling with the transformation of the hard disk industry, which is facing competition from solid state drives, and the rising tax, investment and personnel costs associated with running Chinese plants.”

Seagate, some will recall, was forced to pay Rmb1.4 billion ($204 million) in back taxes after a government audit in Jiangsu in 2015.

The Global Times has been running a series of commentaries over the past week examining the challenges facing international manufacturing in an increasingly costly China. Many of the articles conclude that the country needs to overhaul its tax system to stay competitive. “China needs to create a more straightforward and transparent tax system with a transition towards a more explicit and direct approach,” writes Zhang Jun from Fudan University.

Li Wanfu, director of tax research at the State Administration of Taxation agrees, telling Zhang that 90% of Chinese taxes are paid by enterprises and only 10% by individuals.

By contrast, some of the populist anger in Western countries seems to be driven by a sense that ordinary people are bearing too much of the financial burden, while corporations skip from one low tax jurisdiction to another.

Zhang points out that company cost bases in China can be bedevilled by non-tax fees and charges, which add up to at least 13% of an average company’s revenues. These government surcharges include 7% levies for urban construction, 5% for education and 1% for flood control.

“Such fees paid to local government must come from profit and cannot be passed onto customers,” he says.

As we reported in WiC350, another critic of the tax code is Fuyao Glass boss Cao Dewang. A third is beverage tycoon, Zong Qinghou, who recently told a NetEase forum that his company Wahaha is subject to more than “500 types of fees and taxes”. While Zong conceded the amounts were not very big for his firm, he said they could be crippling for smaller enterprises.

Lin Kaiwen, president of Shanghai Kaiquan Pump, is also unhappy. He tells Yicai.com that his company pays four times as much in tax as it generates in profits. Another complaint is that labour costs are rising faster than employee productivity, and that social security contributions can amount to as much as 40% of staff salaries.

Yicai.com says that struggling manufacturers want the new 17% VAT rate (which replaced the old business tax last May) to be cut to 12%. And the government seems to be trying to persuade multinationals to keep investing in China. Last week, the State Council issued a new circular on “measures for further opening up and active use of foreign investment”. In addition to loosening foreign investment restrictions in a host of industries, it was also at pains to point out that its plan to revamp its industrial base under the “Made in China 2025” banner applies to foreign firms as well as domestic ones.


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