Should Luxury Worry Over China’s Celeb Tax Crackdown?

What Happened: Following a series of celebrity scandals, including some massive tax offenses, the Communist Party is stepping up its regulations in China’s entertainment industry. The State Taxation Administration (STA) recently announced that it has started conducting regular tax investigations on top celebrities and online influencers, promising criminal charges against serious offenders. Nonetheless, high-income celebrities who proactively report and promptly correct tax-related issues before the end of 2021 will receive lighter punishments or could get fully exempted. Details and results from the investigations will be made public in a timely and transparent way.

The Jing Take: Last month, actress Zheng Shuang’s tax evasion case recovered more than $46 million in overdue taxes and fines as the celebrity failed to declare $29.5 million in income for the financial years of 2019-2020. And in 2018, Fan Bingbing was cited for $38 million in unpaid taxes and was fined $136 million. It is no secret that China’s top stars are high earners, but the exact numbers were not public knowledge until recently. Their skyrocketing revenues stunned them, and their tax-evading behavior has caused public outrage.

Beyond trying to force celebrities to set a good example and be more responsible, there is a more alarming problem that China is trying to tackle: its widening wealth gap. Under Xi’s push for “common prosperity,” the country is expecting high-earning influencers to go under the microscope, but also HNWIs.

Is luxury going to be affected? Brands must carefully investigate their current ambassadors to avoid any “time bombs,” double-check all of their contracts, and conform with STA norms, thanks to an ongoing crackdown on the entertainment industry. Meanwhile, it is unlikely that HNWIs will stop purchasing their favorite social currency (luxury items). However, given the current political climate, high spenders may start looking for more sober designs. As such, brands may say goodbye to any splashy logos.

The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.