Local governments in China have asked several companies to pay tax bills dating back as far as the 1990s, including some fertilizer producers, Bloomberg reported on June 17, noting that the move underscores the need for funding due to China’s uneven economic recovery and persistent housing slump.
A number of listed firms have said in exchange filings in recent months that they have gotten government demands to pay tens of millions in back taxes and warned investors this could impact their earnings.
Among them is Zangge Mining Co., whose subsidiary Golmud Zangge Potassic Fertilizer Co. produces 2 million mt/y of potash at its 724-square mile mining area in Qarhan Salt Lake, in China’s western interior. Zangge also mines 10,000 mt/y of battery-grade lithium carbonate through its Golmud Zangge Lithium Co. Ltd. subsidiary.
China’s local governments are facing unprecedented pressure to expand revenues because economic growth is slowing and the contracting real estate market has sent income from land sales plunging, Bloomberg reported. An elevated debt stockpile is limiting their ability to leverage up further, forcing the central government to borrow more and give them the funds.
The tax recovery efforts are “likely due to the fiscal distress of local governments,” said Xing Zhaopeng, an analyst at Australia & New Zealand Banking Group. “I think they need some money by quarter end” because regional authorities usually pay contractors for government projects then, he added.
Local governments booked less than 5.8 trillion yuan in revenues under the general public budget and the government-fund account, which include taxes and land sales income, in the first four months of the year, according to Bloomberg. That figure was less than the roughly 5.9 trillion yuan in the same period last year, according to data from the Finance Ministry. Their spending also fell to just under 10 trillion yuan from 10.4 trillion yuan a year earlier.
V V Food & Beverage Co. said last week that a liquor-making unit was told to pay some 85 million yuan ($11.7 million) on income it “failed to disclose” for about 15 years starting in 1994. Zangge Mining, ChinaLin Securities Co., and Ningbo Bohui Petrochemical Technology Co. issued similar statements.
Ningbo Bohui Petrochemical said in a statement in late March that it objected to the tax authorities’ decision, saying it was based on a rule change made in 2023 and required a key product to be taxed at a higher rate. The back tax payment would drive the firm into losses for last year, it said. The company said in another statement last week that it would suspend production of the item from June 12.