Chinese real estate developers hit back at claims of unpaid RMB3.8 trillion ($623 billion) tax

Nov 25, 2013

CCTV Real Estate Exposé Triggers Business Backlash

A critical report by China’s official television broadcaster over the weekend has set off a rare public dispute between the powerful propaganda organ and business leaders. China Central Television reported on Sunday that property developers neglected to pay more than 3.8 trillion yuan ($623 billion) in land appreciation taxes from 2005 to 2012 (in Chinese). The report said 45 listed developers – including major well-known developers such as Soho China and China Vanke Co.000002.SZ +0.12%, owe land appreciation taxes. The one with the highest bill was Guangzhou-based Agile Property Holdings3383.HK +0.23%, with  8.3 billion yuan at stake, the report said.The report quoted experts as saying the companies wouldn’t be able to support their cash flow if they paid what they owe in land appreciation taxes. “This would lower their ability to drive up land and housing prices,” the report cited Kang Xiaoming, a researcher from government think tank China Academy of Social Sciences, as saying.

The report met with a quick denial from a number of players in China’s real-estate business. Vanke, China’s largest property developer my sales, called the report “mistaken.” It said it paid 21.1 billion yuan in taxes in 2012, of which 5.28 billlion yuan was for land appreciation tax. “Vanke has always abided by the law in its business operations and paid taxes according to regulations,” it said in a statement.

Soho and Agile didn’t respond to requests for comment. Soho China was down a modest 0.6% on Monday in Hong Kong, but Agile was down 2.6%. In Shenzhen, Vanke’s A shares were down 1%.

The most vociferous industry response was from Ren Zhiqiang, who runs Huayuan Property

Co.600743.SH -0.37%, which wasn’t mentioned in the report. Mr. Ren is also one of China’s most widely read online personalities, with nearly 16 million followers on his Sina Weibo microblog account.

“CCTV appears to have an axe to grind and seems determined to bring down the market economy,” Mr. Ren wrote. In another post he said, “I know only of the stupidity and ignorance of CCTV after seeing this report.”

CCTV didn’t immediately respond to a request for comment.

The dispute comes in a year in which CCTV has criticized a number of companies. While foreign companies such as Apple Inc. and Volkswagen AG have drawn much of the attention, the broadcaster has also taken on a number of local companies as well. In March, Anhui Jianghuai Automobile Co. apologized after CCTV accused it of using low-quality steel plates in its cars. It has also criticized domestic drug companies for their deceptive advertising.

The broadcast also comes as Chinese real estate prices climbing steadily, feeding into public worries about unaffordable housing. Government data on October new home sales released last week and analyzed by The Wall Street Journal showed prices in 70 Chinese cities rose an average of 8.8% from a year earlier.

At issue in the CCTV report is land appreciation taxes. They are levied on gains arising from the transfer of land-use rights and buildings constructed on the land. It is calculated based on property developers’ profits. It is payable when construction of the property project is completed and sales of apartments or units reach 85% or more. The tax rate is between 30% to 60%.

CCTV said the report was prompted by discussion of property taxes following a meeting of China’s top leaders earlier this month to sketch out a blueprint for Chinese reform. Among other matters, its concluding document called for speeding up implementation of property taxes, which currently are rare in China.

Some analysts were skeptical of the report. “The CCTV report lacks basic knowledge regarding tax theories and practices,” said Hou Like, an analyst at China Galaxy Securities6881.HK -1.41%. “Large property developers are audited by the Big Four accounting firms … they would not miss expenses amounting on more than tens of millions of yuan.”

“This TV program largely misunderstood the mechanism for land appreciation tax payment,” said Jinsong Du, an analyst at Credit Suisse, adding that he doesn’t expect the report to immediately prompt all local governments to enforce full payment.

“The TV program also ignored the dynamics between developers and local governments, who often allow developers to pay land appreciation taxes during an extended period of time to incentivize the developers to buy more land. This is especially true in smaller cities,” he added.

During the eight-year period between 2005 to 2012, the government collected CNY800 billion in land appreciation taxes, the CCTV report said.

Real estate developers hit back at claims of unpaid tax

2013-11-26 01:30:44 GMT2013-11-26 09:30:44(Beijing Time)  Shanghai Daily

Chinese real estate developers owed at least 3.8 trillion yuan (US$623 billion) in land appreciation tax between 2005 and 2012, according to a China Central Television report.

However, property companies hit back, with one saying the report was based on a “misunderstanding.”

Another threatened to sue.

In a weekly consumer program on Sunday, CCTV said the firms should have paid more than 4.6 trillion yuan in land taxes, but authorities collected just 800 billion yuan.

The CCTV report cited Li Jinsong, a Beijing-based lawyer and also certified public accountant and tax agent. Li had tracked data released by the National Bureau of Statistics, Ministry of Finance and State Administration of Taxation.

The CCTV report did not say how many firms were alleged to have failed to pay taxes, but said they included 45 listed Chinese property developers, trading both domestically and overseas.

In China, developers must pay tax on the increase in the value of their land when they sell properties on the land or transfer the lease.

Developers which failed to pay the tax included China Vanke Co, SOHO China Ltd, Agile Property Holdings Ltd and Guangzhou R&F Properties Co, CCTV said.

Its report said the Beijing Huayuan Group owed around 540 million yuan, SOHO China 6.4 billion yuan, and China Vanke, the country’s largest homebuilder by sales, 5.8 billion yuan.

Huayuan President Ren Zhiqiang threatened to sue CCTV.

“I only know the stupidity and ignorance of CCTV after seeing this report,” said Ren on his widely followed microblog. “It wrongly assumed company’s provision for the tax as an immediate obligation for payment of the tax. The LAT will be due after developers complete the project.”

He added: “I’m studying how to publicly prosecute CCTV.”

Li, the lawyer cited in the report, defended his claims on his microblog.

“I only know your stupidity and ignorance in the field of taxation after reading your posts,” he shot back at Ren.

“Please consult your chief financial officer before posting.”

China Vanke said yesterday that it obeyed all laws and regulations in its business operations and remained an honest taxpayer.

“The CCTV report was probably based on a misunderstanding,” Vanke told netease.com. “It mistook ‘provision’ for ‘obligation.’”

Gemdale Corp, which was said to owe 2.6 billion yuan, told the website it was “inappropriate” to use the word “owe.”

It also questioned the accuracy of data used in the CCTV report.

Last night, more than 10 real estate developers named in the CCTV report, including Gemdale, Huayuan and COFCO Property, filed statements with the country’s two stock exchanges saying that they did not owe tax.