On December 31, 2022, Focus announced that it has received financial subsidies. The company will receive a total of 670 million “financial subsidies” in 2022, exceeding 10% of the company’s annual profit.
The “financial subsidies” obtained are classified in the following table. In addition to the refund of 20 million personal tax fees and 3 million other sporadic subsidies, about 650 million came from Ningbo Daxie, Jiangxi Gongqingcheng, Guangzhou Development Zone, Shanghai Changning and Financial support from other regions.
The return of individual tax handling fees is relatively easy to understand, that is, the employees of the enterprise are obliged to pay individual income tax. If the tax department directly collects the individual income tax, the specific implementation and the accuracy of the collection are not as good as the enterprise directly paying the wages on behalf of the individual. pay. Therefore, the state returns 2% of the personal income tax paid by the enterprise to the enterprise, which is similar to the remuneration paid by the enterprise.
The main part is the financial support issued by the local government. From the perspective of past years, basically every year, Focus can obtain financial subsidies exceeding 10% of the current year’s profits.
The histogram above shows Focus’s pre-tax profit trend (left axis), and the red line and gray line (right axis) respectively represent the amount of tax paid by Focus in the past years and the amount of financial subsidies received in the current year.
There is probably a rule that if the profit and tax paid in the year are more, then the subsidy will be more in the next year. For example, Focus’s pre-tax profit in 2019 was only more than 2 billion yuan, and it paid 800 million yuan in taxes that year, and received only 300 million yuan in subsidies in 2020. With the recovery of profits and the increase in tax payments in 2020, the subsidy received in 2021 will increase to nearly 600 million.
Therefore, this “financial support and subsidy” project is more like a tax rebate in essence.
Why tax refund?
Let’s first look at Ningbo Daxie, which has the most subsidy in 2021. The main entities receiving Ningbo Daxie’s subsidies are Chizhong Advertising Co., Ltd., Ningbo Fenshi Advertising Co., Ltd. and Focus Jingshi Advertising Co., Ltd., the three subsidiaries registered in Ningbo. The corporate income tax rates are 25%, 20% and 25% respectively. Among them, Chizhong will generate revenue of 5.6 billion and net profit of 830 million in 2021.
Ningbo Fenshi enjoys preferential taxation as a small and micro enterprise, so the tax rate is 20%.
But this tax rate is relatively high. As a comparison, the company set up by Chizhong in Shanghai is recognized as a high-tech enterprise, and the corporate income tax rate is only 15%. Jingshi’s subsidiary in Chengdu enjoys the preferential tax policies for the development of the western region, and the corporate income tax until 2030 is 15%.
The corporate income tax rate of the subsidiaries set up in Jiangxi Gongqingcheng and Guangzhou is also 25%.
As far as the business model of Focus is concerned, the main body of the company can bring GDP, taxation, employment, etc. to DFZF, but the specific location of the main body is not so important. Unlike asset-heavy enterprises, it is very difficult to relocate assets. Focus is just renting office buildings in another area, and the replacement cost is extremely low.
In order to introduce and retain such enterprises, if tax incentives cannot be provided, then DFZF is naturally willing to return the local income tax to enterprises in a certain proportion.
For example, Focus pointed out in the document disclosed by the backdoor listing:
The more taxes you pay, the higher the subsidy (tax rebate) rate you get. Moreover, based on the unique business model of the enterprise and the inter-county competitive environment for investment promotion, obtaining tax rebates or tax incentives is a long-term and definite matter.
Just as in the past few years, there were a large number of film and television company registrations in Hall, and the reason is the same. Where the film and television companies are registered has no effect on the operation of the company, so where the tax incentives are given, the companies are willing to register together.
However, in 2019, the overall corporate income tax rate of Focus has risen from about 17% to 21%, mainly because the income tax of some enterprises has been adjusted from complete reduction to 15% or halved. It is expected that the tax rate of 21% will remain stable for a long time.
In addition, the taxes and surcharges of Focus will have a relatively large decline in 2020, exceeding 200 million.
The main source is that the construction fee for cultural undertakings, which was previously taxed at 3% of revenue, will be halved by 1.5% from July 2019. Cultural undertaking construction tax is a national tax, which is levied on the two industries of advertising and entertainment.
After 2020, due to the epidemic, construction fees for cultural undertakings have been exempted for two consecutive years. According to the impact of the epidemic in 2022, it is expected that this tax will still be reduced in 2022, but it is expected to return to 1.5% in 2023.
Therefore, the so-called “support subsidy” obtained by Focus is actually just a long-term sustainable corporate income tax rebate behavior brought about by the competition of local investment attraction and Focus’s business model.
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