China Securities Regulatory Commission (CSRC) officials recently said it would be necessary to levy a digital services tax on platform companies, through which users whose personal data are collected by the platform would share the revenue generated by the platform. However, some scholars believe that the tax increase will only hit the capital market, but will not benefit the people.
Yao Qian, head of the science and technology bureau of the China Securities Regulatory Commission, said at a summit that the government needed to strengthen theoretical and practical research on digital taxes and consider imposing a digital tax on technology companies that hold large amounts of user data, the Beijing News reported on Dec. 16. Yao likened user data to natural resources, arguing that the government has the same right to tax them.
He Jiangbing, a Chinese finance scholar, told the BBC that the Chinese government’s imposition of a digital tax was detrimental to the country’s economic recovery as the economy was hit hard by COVID-19: “The CSRC does not have the power to raise taxes on companies, nor even the right to make suggestions. Raising taxes will affect the profits of companies and will be a blow to the capital market. Why they should make such a suggestion is beyond me.”
The nature of Chinese digital tax is different from that of international digital tax
Digital taxes have become a hot international issue since the beginning of this year. Under current international tax rules, multinational companies typically pay corporate income tax to the country of incorporation rather than to the country of the consumer. With the rise of e-commerce, the tax regulation of the global economy is further tightened. By October, a number of European countries, including France, Britain and Italy, had started to implement the digital tax system due to the concern of multinational technology companies’ monopolization of the market. The tax was imposed on multinational technology companies with large user bases and providing digital services in Europe, especially Google, Facebook and other us technology giants.
He jiangbing believes that the essence of China’s digital tax is turnover tax, and the international implementation of digital tax, namely income tax, is completely different: “the European Union increases the tax on Google and other technology companies in the United States, because they can land in the European Union. The EU is raising taxes on monopolies and barbaric companies, but China is raising taxes on itself.”
Yao also said in his speech that companies collect user data to adapt to market changes and adjust their competitive strategies, and user data is the source of value for the platform, so users should share in the revenue generated by the platform. At the same time, China should also impose digital taxes on multinational platform companies in order to maintain the jurisdiction of tax sources, Yao said.
Recent remarks by Guo Shuqing, chairman of the China Banking Regulatory Commission, also sent a signal that The Chinese government is tightening its grip on user data. ‘China has explicitly listed data as a factor of production alongside labor, capital and technology, and the big tech companies have de facto control over that data,’ he said. Therefore, it is necessary to clarify the data rights and interests of all parties as soon as possible, promote the improvement of data flow and pricing mechanism, and make full, fair and reasonable use of data value.
In response, He jiangbing believes that once officials let the wind out of their mouths, the digital tax will fall sooner or later: “When the tax is collected by the public, the results will not be shared by the people. When they use the tax under the banner of sharing, the users will still not share.”
Xie Tian, a business professor at the University of South Carolina in the United States, said the current digital tax at the international level involves the distribution of the huge profits generated by multinational Internet companies among different countries, while China’s proposed digital tax is a domestic tax. The new tax is a reflection of the Chinese government’s financial predicament amid the economic downturn.
The digital tax aims to strengthen financial regulation
Mr Xie sees the introduction of the digital tax by CSRC officials as the latest sign of increased government scrutiny of emerging economies: “It is really not the CSRC’s job to tax, its job is just to monitor the problem of fraud in securities trading and the tax should be a consideration for the Ministry of Finance.”
He said that although Yao has mentioned paying close attention to the international reform of digital tax, which treats multinational companies equally in China, the digital tax is mainly aimed at famous technology companies such as Tencent and Alibaba: “Digital tax is the Chinese communist Party cutting into private enterprises and cutting Chinese chives, that’s for sure. The EU is taxing American tech companies for antitrust reasons. It doesn’t want big American tech companies to dominate the European market. China doesn’t have that consideration right now because there are no so-called foreign tech giants entering the Chinese market.”
Xie said there are many technical problems with the implementation of digital taxes, including setting the tax scope and falsifying user data. “There is also the question of how to define the basis of a digital tax, the number of users or the number of active users, and there are many grey areas that are difficult to define. These companies have to hand over core secrets, and that information may not be true, and that raises a lot of questions.”
Xie said the digital tax is aimed at strengthening financial regulation, but whether it will have an effect remains to be seen. “The digital tax will certainly curb data fraud to some extent, but the tax increase will encourage these companies to evade taxes in other ways, and the fight against counterfeiting will encourage more fraud,” he said.