March 18th, 2009 | Economic Observer Online In Shadow of Three Gorges Dam, Tax Battle Brews
With the Three-Gorges Dam project nearing completion in 2009, Chongqing city and Hubei province were both lobbying the China’s State Council for a bigger share in tax revenues from the dam.
It was estimated the dam would reel in 5 billion yuan in tax revenues every year after 2009, the Economic Observer learned.
Lobbying for Sympathy
Because the project has legs in two administrative regions–the dam in Hubei and the major reservoir in Chongqing–the two have found it difficult to reach a consensus on tax revenue distribution.
During the country’s top legislative meetings in early March, Chongqing municipal government invited media to a presentation about the economy of areas surrounding the reservoir.
At the presentation, Tan Qiwei, vice-mayor, said despite the resettlement of affected local residents had been completed, but Chongqing still faced the difficult task of providing them with sufficiently high quality of life.
The economy in these areas fell far behind the national average and needed more support from the central treasury, he told journalists.
Hubei chose a different path. It penned a report to the State Council claiming that the current distribution method went against local tax distribution principles.
The tax revenues in question came from annual corporate income taxes, value-added taxes, and urban construction taxes on the Three Gorges power station.
Before 2003, when the power station’s construction was still in its infancy, tax collection was managed entirely by Hubei province.
Then, from 2003 to 2009, value-added and urban construction tax revenues were distributed to Hubei and Chongqing based on the proportion of submerged land area under each. The Ministry of Finance had yet to unveil a scheme dealing with post-2009.
But up until 2009, all corporate income tax revenues from the power station were handed over to China’s Three Gorges Project Corporation (CTGPC) to fund construction of the dam. This company however would be dissolved upon project completion in 2009, and therefore, the central government needed to consider how to allocate these remaining, significant tax revenues between Chongqing and Hubei.
An official from the Hubei finance bureau told EO that since the Three Gorges power station was located in Hubei, they had been in charge of collecting the station’s value-added and urban maintenance and construction tax, but they had to give six-sevenths of their tax revenues to Chongqing.
According to one report authored by the Hubei provincial government and sent to central authorities, tax revenues from the Three Gorges power station had reached almost 25 billion yuan from 2003 to 2009. But after deducting what went to the central government and the China Three Gorges Project Corporation, Hubei saw only 367 million yuan, while Chongqing enjoyed almost 2 billion, the report said.
As for the report, Wu Zhenglong, a party official from Chongqing, held although the dam generated the electricity in Hubei province, the power source came from the reservoir in Chongqing.
He insisted that the tax revenue distribution should be based on the proportions of submerged land, and suggested the central government invest more in supporting the reservoir area’s development. Chongqing made up over 84% of the total submerged land area, while almost 16% for Hubei province.
The finance official from Hubei province, however, saw the issue differently. He told the EO that though Hubei agreed with the principle of sharing tax revenues based on the proportion of submerged land, this agreement occurred at a time when Chongqing was in the midst of the difficult process of resettling affected residents.
He held that as the project approached completion, the central government should reconsider the tax revenue distribution and increase Hubei’s share.
He added that tax collection of corporate income taxes should fall under the jurisdiction of local authorities in accordance with the Tax Law, and not be based on administrative orders.