Khorgos highlights local policies can go awry

More than 100 film and television companies, including those owned by some big names in the circle, have reportedly applied to be deregistered in Khorgos in the Xinjiang Uygur autonomous region since June. Guangming Daily comments:

This wave of business exodus from the remote town, which is famous for its low tax, comes as the authorities are looking into the issue of tax evasion by entertainment celebrities, many of whom run companies registered in places such as Khorgos.

To promote the development of cultural industries, the central government has implemented some supportive policies to reduce the companies' tax and fee burdens. Yet, to turn the less-developed inland town into a business center in a short time, the government of Khorgos has meted out even more favorable policies, which has indeed brought thousands of companies to what has become a tax haven.

The rationality behind the tax cut policies is that the beneficiary enterprises are expected to grow fast and contribute to the society through creating jobs and adding value.

But many of the ventures registered there are simply shell companies to help their owners turn personal remuneration into business revenue that is subject to much lower tax thanks to Khorgos' generous tax policies.

The thousands of companies in the town that do not have any concrete business, bring little benefit to the city as their total tax revenue is meager, and they do not create jobs and value. In this sense, Khorgos has not become a paradise of business as it expected to but rather a black hole sucking in tax revenues that could otherwise be used for the public good and to promote social fairness.

The distorted tax policies in Khorgos have set an example on how the bad policies in one place can have a negative effect nationwide. Apart from investigating all possible tax evasions involving these shell companies, including those that have already been deregistered, the authorities should also redefine the legal boundaries for the policymaking of local governments.