Caixin
Aug 29, 2012 05:26 PM

Chongqing Hit Developers with Large Fines in 2011

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A special inspection into tax payments in the real estate sector launched by the Chongqing government in 2011 collected 4.5 billion yuan in fines, recent data from the city's Finance Bureau shows.

A source closed to the bureau said that to alleviate fiscal pressure, several city government agencies, including the tax department, land bureau and the industry and commerce administration, jointly launched a special city-wide inquiry that targeted property companies.

The inspection focused on the land value-added tax, which in the past had been loosely supervised, the source said. Longfor Properties Co. alone was told to pay 300 billion yuan.

A Longfor employee confirmed the company paid the amount in May last year, but denied it was a fine for tax evasion.

The government also fined 115 developers operating in the city for ad-related violations. The firms include China Vanke, China Overseas Property and Luneng Group.

Facing an economic slowdown and dropping revenue from land sales in the wake of curbs the central government put in place in 2010, many local governments have suffered slower revenue growth. Chongqing's revenue from land sales in 2011 was 38.9 billion yuan, up 10 percent year on year, the city's Finance Bureau said. However, in 2010 the same figure rose 112 percent year on year.

In hopes of nursing budgets back to health, the governments have been searching for new sources of income, some by redoubling tax collection efforts.

A developer in Chongqing said that "the situation is even harsher than during the 2008 financial crisis. What the government is doing is like killing the goose that lays the golden eggs."

Chongqing has enjoyed annual GDP growth of over 15 percent GDP over the past several years, but the city government has also accumulated debts of hundreds of billions of yuan for construction projects. The city's budget deficit in 2010 was 70 billion yuan, and in 2011 it was 110 billion yuan.

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