China: fabricated tech
August 10, 2010 by Jules
Tech for Tax
Highly entertaining article from Caixin. The first 3 paragraphs are below, and the rest can be read online.
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In order to promote technological innovation, three government agencies introduced the High-tech Enterprise Certification Management Policy (High-tech Policy) in 2008. The Ministry of Science and Technology (MOST), Ministry of Finance and the State Administration of Taxation jointly introduced a tax incentive policy to companies with a high-tech certification. From the standard 25 percent corporate tax rate, the tax for high-tech companies was slashed to 15 percent.
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After the policy took effect, middlemen agencies that collected fees on the new application process sprouted across the country overnight. The number of agencies in Beijing reached 300, the most in the country. The Yangtze and Pearl River Deltas came in second to Beijing. A cottage industry emerged as a result of the policy adjustment, including accounting firms, law firms, intellectual property firms and various consulting firms. These firms offer professional services not only to handle the application process for high-tech companies, but also help fabricate conditions for clients to gain certification.
And along with the arrival of the 10 percent tax reduction was the birth of "false high-tech companies." An official at the MOST who asked to remain anonymous said, "At least 50 percent of the companies that have already received high-tech certification are not truly qualified. They were certified under falsified materials."
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And we thought that those 1990's phantom citrus orchards in Sicily were the only result of fiscal incentives gone bad.
Another reason to query supplier margins perhaps?
In: Market News