China tech crackdown: no more tax-free riches for live-streaming stars as Beijing tightens oversight

China's newly published live-streaming regulations are set to put an end to live-streamers' dreams of tax-free riches, according to legal analysts.

Under new rules jointly issued by the Cyberspace Administration of China, State Administration of Tax, and State Administration for Market Regulation, platforms are required to provide twice-yearly reports on their live-streamers, including information such as personal identification, bank account and income details.

Under the regulation, which came into effect on Wednesday, platforms also need to deduct personal income tax from live-streamers' revenue, a move that could translate into hefty tax payments for online influencers.

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"The guidelines have put an end to the era of live-streamers making money without much effort," said Wang Yang, a lawyer at Yingke Law Firm. "Live-streamers can only earn money they deserve ... rather than getting rich overnight."

Unlike previous guidelines where regulators would just advise people to "pay taxes properly", Wang said the new rules provide a precise mechanism for collecting taxes.

"In the past, tax departments had no idea when you became a live-streamer as the information on live-streaming platforms was not shared with tax authorities," she said. "Now, there is no place for live-streamers to hide."

The move comes as tax authorities have ramped up their efforts to regulate the live-streaming industry. Viya, one of China's top influencers, was fined 1.3 billion yuan (US$204 million) in December for tax evasion and subsequently disappeared from social media and live-streaming platforms. In November, top live-streamer Zhu Chenhui was fined millions of yuan for tax evasion and also was scrubbed from the internet.

A live-streamer in Shanghai told the Post earlier this year that it was common for them to avoid paying tax. For example, they would try to sell more agricultural products, as those kinds of goods qualified for preferential tax treatment.

Platforms also deduct tax for us, as the "money always goes to the platforms first", then we can get the cash out, according to the live-streamer, who declined to be named because of the sensitivity of the matter.

A live-streaming session by Dong Dong, a virtual idol promoting the Beijing 2022 Winter Olympics, is seen on Alibaba's e-commerce app Taobao in this illustration picture taken February 10, 2022. Photo: Reuters

Everyone tries to avoid paying some taxes "within a reasonable range", she said. Less-known live-streamers cannot make much profit, so paying some taxes is fine for the popular streamers.

Although live-streaming platforms were already required to withhold tax, the new regulation makes it clearer, according to Cui Yanshuang, a Shanghai-based lawyer at law firm RICC & CO. "As it is a relatively new industry, platforms don't know what to do when regulatory requirements are not clear enough," she said.

The guidelines also prohibit exaggerated or misleading marketing practices in live streams. Live-streamers who discuss price comparisons of products in videos should also show their advice in text to better protect consumers, authorities said.

You Yunting, a senior partner at Shanghai Debund Law Firm Offices, pointed out that the new guidelines went beyond tax issues because they prioritised the responsibility of platforms to regulate content.

"The economic aspect is of secondary importance. The main focus is still on the direction of the content," You said.

However, You warned that platforms should proactively comply with the new regulatory requirements, even at the risk of losing eye-catching content and bearing higher compliance costs. "If the platforms fail to comply with the policies, it will not just be a question of profits, but the existence of the platforms themselves," You said.

Streaming platforms are also expecting a slowdown in business amid the uncertainty over new tax policies. Tencent Music Entertainment, the music arm of internet giant Tencent Holdings, said its first-quarter performance came under pressure from the tax crackdown. Last year, the company generated nearly two thirds of its revenue from social entertainment, including live-streaming tips.

"There are changes to the industry around taxation that effectively increased the cost of doing business for many of the live streaming hosts, so some of them need to adjust their activity levels," Tony Yip, chief strategy officer of Tencent Music, said in a conference call with analysts last week.

Kuaishou Technology said on Thursday that regulation will help the industry grow in a "more healthy and sustainable" way. The company will "provide tax-related data to tax departments in accordance with the regulations, continue to offer tax knowledge training to live-streamers, and help live-streamers better meet the tax obligations", it said in a statement to the Post.

TikTok owner ByteDance and Alibaba Group Holding, which operates the Taobao Live platform, did not immediately respond to a request for comment. Alibaba is the parent company of the Post.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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