Fan Bingbing's tax evasion case serves as warning to China's burgeoning entertainment industry

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Chinese actress Fan Bingbing said she was deeply ashamed of her crimes and apologised to tax authorities and the public.

BEIJING (BLOOMBERG, XINHUA) - China's decision to slap superstar Fan Bingbing with one of the country's biggest tax evasion penalties in recent memory sends a reminder that the Communist Party has no plans to loosen its grip on the booming film and television industry.

Fan and companies she's affiliated with were ordered to pay about 884 million yuan (S$178 million) in back taxes and fines, the official Xinhua news agency reported on Wednesday (Oct 3).

The 37-year-old actress said she was deeply ashamed of her crimes and apologised to tax authorities and the public.

China's pursuit of one of its biggest stars serves as a warning to a burgeoning entertainment industry in a country that analysts predict will overtake the United States as the world's biggest movie box office in the coming years.

The government investigation came as scrutiny heightened over what is already the world's most regulated major entertainment market, where the Communist Party weighs in on everything from costumes to talent pay.

"Everyone is equal before the law, there is no 'superstar' or 'rich and powerful', no one can despise the law and hope to be lucky," Xinhua said in a separate commentary about the case.

Professor Shi Zhengwen, a tax law specialist at China University of Political Science and Law, said contract fraud was an issue that has attracted strong public complaints in recent years.

The punishment is severe but matches the illicit acts, Prof Shi said, adding that potential tax evaders should be warned.

Prof Zhang Bin, a researcher with National Academy of Economic Strategy under Chinese Academy of Social Sciences, said: "The case sends a strong warning to those who flout the tax law and is a good lesson on tax compliance to the public."

He added that public awareness on tax payment was key, as China deepens reform to improve its taxation systems.

China's State Taxation Administration said it would soon launch a new campaign to regulate tax payment in the film and TV industry.

It said film and TV firms as well as personnel that undergo self-examination and make remedial payments to taxation authorities before Dec 31 will be exempt from administrative punishment and penalties.

Mr Zhong Chengxiang, head of China Literature and Art Critics Association, urged artists and entertainers to abide by laws and meet public expectations by raising their moral integrity and the artistic appeal of their work.

Fan, who has more than 60 million followers on the Twitter-like Weibo, had vanished from public view and on social media since June. That is after a former broadcaster took to Weibo to publish what he described as contracts Fan and others have used to avoid taxes.

This is also a year in which China's government introduced business tax reforms to boost the economy, only to see revenue slump. Premier Li Keqiang last month said tax receipts will see a relatively large decline in the second half.

The scale of the fines and taxes, almost three times Fan's 2017 income, as estimated by Forbes magazine, are likely to reverberate, given her popularity and star power within the country's entertainment community and luxury goods makers.

Fan earned 300 million yuan last year, topping the Forbes China Celebrity List, whose rankings factor in income and popularity.

Along with big film and television roles, she is also known as a celebrity endorser of top luxury brands including Cartier, Chopard, Mercedes-Benz, L'Oreal and Louis Vuitton.

Fan had been named a judge at the Cannes film festival and appeared there in May to promote the movie 355 with peers Jessica Chastain, Marion Cotillard, Penélope Cruz and Lupita Nyong'o - a female spy blockbuster she swiftly dropped out of following the tax allegations.

The Chinese star's return to Weibo to apologise and vow to "overcome difficulties" to pay the taxes and fines caps a period in which Fan had not been heard from on social media nor reported to be seen in public.

The absence spurred speculation she was being held by the authorities, who made no announcements regarding her status.

Fan's agent is being held on suspicion of criminal activity, and the tax authorities said he obstructed their investigation, Xinhua reported.

If the star pays the fines and taxes on time, she will avoid criminal charges, the news agency said, citing the tax authority.

The Party-controlled Chinese Academy of Social Sciences last month released an assessment and ranking of the "social responsibility" exhibited by China's Top 100 celebrities. Fan ranked last.

Only nine stars "passed" the assessment at all. In recent months, the government has also issued directives to cap celebrities' pay, and top production companies have vowed to resist overcompensating stars.

The star's tax troubles surfaced earlier this year when Cui Yongyuan, a retired state television news anchor, posted snapshots on Weibo of two contracts that appeared to be for an upcoming Fan film. One indicated a salary of US$1.6 million (S$2.2 million) to be reported, while a second document appeared to show actual payment of US$7.8 million.

The practice is known in China as "yin and yang" contracts and is used in other industries as well. Cui's accusation that the contracts were for a Fan film prompted the State Administration of Taxation to begin a probe of her and the entertainment industry.

In June, the Communist Party's Central Publicity Department and four other government departments issued a directive that compensation to performers must not exceed 40 per cent of total production cost. Nor can leading actors be paid more than 70 per cent of total cast remuneration. The caps apply to productions that include films, TV dramas, variety shows and digital-only series.

Extravagant pay and tax evasion have fuelled "money worship" and twisted social values, the directive said. The industry should put "social benefit" first, it said.

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