By Pradeep Kumar
Beyond the Horizon
The Comptroller and Auditor General (CAG), the supreme audit institution of India, has unearthed many innovative tax-evasion tactics prevailing in Indian film industry, and has advised the tax-collecting authorities to have a re-look at many such transactions and realise the evaded income tax, .
Though the CAG has specifically mentioned only a handful of such cases where Bollywood celebrities and leading production houses have evaded income tax, if the IT department was to go full steam ahead in plugging the loopholes as suggested by the CAG, the national exchequer could swell by hundreds of crores of rupees.
Celebrity actors like Ranbir Kapoor of Bollywood, top hero of Telugu films Nandamuri Taraka Rama Rao and super-hit films like Dabangg 2 and Chennai Express have come under the scanner of the CAG report number 31 of 2017 (performance audit) on the entertainment sector which was tabled in the Lok Sabha on 04.07.17. This list promises to include scores of celebrities of the Indian film industry encompassing the entire regional cinema, not just Bollywood, in coming weeks and months if the taxmen were to get their act together and follow the CAG’s suggested roadmap, the Hindustan Times reported on 06.08.17.
Tax scandal brought film industry to a grinding halt
Questions surrounding the Chinese superstar Fan Bingbing’s confession and US$127.8 million fine for tax evasion point to a lack of procedural transparency. We are familiar with her story by now. The actress was hidden from public view for 100 days until she confessed to tax evasion. There was no trial. China’s superstar should thank her luck; her punishment could have been a lot worse, writes Nicolas Groffman.
After her “confession”, she was given a stupendous fine of 884 million yuan (US$127.8 million). She has been listed among world’s top 10 highest paid actresses, along with Jennifer Lawrence and Deepika Padukone; but she will find her earning potential drastically reduced, because Chinese studios and international advertisers will drop her.
Chinese commentary and English language commentary on the case could not be more different. The latter has tended to focus on the apparent lawlessness with which the matter was handled. The “Chinese view”, however, has been that Fan was lucky to avoid criminal charges.
Chinese legal scholars and journalists have queued up to publish articles and WeChat blogs about why this was possible.
The comments on related articles (which are carefully curated in Chinese blogs) tend to show outraged ordinary citizens complaining about the star’s tax dodging while wise scholars explain that an administrative fine is sufficient and a better way of improving China’s tax collection than the blunt instrument of imprisonment.
The death penalty for tax fraud was removed in 2011, but life imprisonment is still possible. The 2009 amendment to China’s Criminal Law, however, provides that for a first-time offender, an administrative fine may be paid within a given period and criminal liability thus avoided; and that is why we might consider Fan to be lucky.
According to Mimi Zou of Oxford University, “you have to go back to around 2000-2002 for last wave of tax-related cases against media stars, and the amounts back then were much smaller than the hundreds of millions we’re seeing today”. Even so, people were imprisoned.
Chinese media has avoided any discussion of whether Fan really was guilty of the offence and whether she was fairly treated by focusing attention on other quibbles.
Zhao Lei of Beijing Zewen Law Firm hoisted the straw man that it might not have been her first offence, before concluding comfortably that it was, by reference to the definition of “first”.
Chen Youxi of Capital Equity Legal Group stated that “many have suggested she had evaded such a huge amount of tax that she deserves to be treated as a criminal” and then reminded his readers that China’s criminal system benevolently treats tax evasion as avoidance of payment duties, rather than actual robbery.
Hu Gongqun of Zhongyin Law Firm commented that the amendment to the criminal law makes the system more humane and promotes justice.
China tells entertainment industry to sort out their taxes – and pay their bills in full. All of this distracts attention from more serious questions. We can dismiss this as spin, but the fact remains that others have been jailed or killed for lesser crimes.
Mimi Zou again said: “The problem with tax evasion is that everyone is doing it. The Govt can’t possibly enforce [the rules] against everyone” so it enforces them “against a big name with a huge amount at stake”.
If Fan Bingbing is guilty of massive tax evasion, then in most countries she would suffer penalties at least as severe as those levied by China.
Catching a celebrity has an impact across society, so it is easy to understand why the Govt would want to do this. Why then did it then have to spoil the party by conducting the investigation in such a dubious way?
Having someone vanish for three months does not give us the warm feeling of a transparent legal system in action. It’s important to draw a distinction between published blogs in China and the more private chit chat that one hears from experts and sees on WeChat. Chinese legal experts are concerned by opacity of the procedure. How do we even know for sure that Fan was guilty?
If you lock someone away for three months, they’ll confess to anything. And what was the procedure under which she was detained? That we are to ask these questions point to a lack of transparency in the process, which undermines the rule of law.
Returning to the original question: was Fan Bingbing lucky to avoid imprisonment, or unlucky to be punished for something everyone does? If she is guilty of tax evasion on such a massive scale, then in most countries she would suffer penalties at least as severe as those levied by China. Fan Bingbing is in world’s best-paid actresses list, but Jennifer Lawrence is still top earner.
But China’s own tax authority has facilitated yin-yang contracts for decades. Anyone who has conducted a house sale in China will recall the “guide price” system used by the tax bureau.
It is hardly surprising that very large transactions involve similar shenanigans. Those who profess outrage at Fan’s alleged behaviour are either pretending, or easily led. Yet for her, the result could have been much worse. (Nicolas Groffman, who practised law in Beijing and Shanghai, is a partner at law firm Harrison Clark Rickerbys in London)
USA celebrities in tax scandals
Every American has to pay taxes, and some celebrities have learned the hard way that they’re not above the law. Whether they deliberately falsified a tax return or inadvertently chose an inept tax advisor, Uncle Sam always finds out.
When you’re a celebrity, it’s difficult to keep much of your personal life under wraps, including your private financial or tax information. For some public figures like elected officials, disclosing their financial records is even a part of their jobs. Other celebrities have had their tax information revealed to the world due to bankruptcy filings or battles with the Internal Revenue Service (IRS), a Govt agency.
Wesley Snipes: The famed actor starred in hit movies like “Major League,” but that didn’t keep him from getting three years in jail for tax woes. A 2008 tax evasion trial found that Snipes cheated the IRS out of $7 million worth of taxes, according to USA Today. The back taxes owed are around 18 percent of the $38 million unreported income Snipes earned from 1999 to 2006, during which period he failed to file any tax returns, reports Reuters. Snipes was released from jail in April 2013.
Bill and Hillary Clinton: Hillary Clinton released her and the former president’s tax returns from 2000 to 2007 when she was vying for the 2008 Democratic presidential candidacy. The tax returns revealed that the couple’s income over the eight-year span totaled $109 million, according to The Huffington Post. The Clinton’s sources of income during that time that really raised eyebrows, however, was the $15 million paid to the former president Bill Clinton by billionaire Ron Burkle’s Yucaipa Global Opportunities Fund between 2003 and 2007. Bill ended that business partnership in 2009, walking away from potential earnings of $20 million, reports The Wall Street Journal.
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