Labor NGO Stuck with Fine for Unpaid Taxes

C O N F I D E N T I A L GUANGZHOU 000008

SIPDIS

STATE FOR EAP/CM, DRL

E.O. 12958: DECL: 01/06/2035
TAGS: ELAB ECON PGOV CH
SUBJECT: Labor NGO Stuck with Fine for Unpaid Taxes

Classified by Economic and Political Section Chief Steve
Lang for reason 1.4 (d).


1. (C) Summary: A Shenzhen-based labor NGO was charged
more than RMB 79,000 (approximately US$12,000) in back
taxes and fees in what the organization's director says
was a move orchestrated by local security authorities.
The situation appears to be limited to the single NGO,
though directors of some other labor NGOs have expressed
concern that they could face similar problems. End
summary.


2. (C) The Shenzhen Bao'an District Taxation Bureau
charged the Shenzhen Spring Breeze (chunfeng) Labor
Dispute Service Center with thousands of dollars worth of
back taxes and imposed the maximum penalty of 300% for
late payment, according to Spring Breeze Director Zhang
Zhiru. The incident, which began in late July 2009 and
was only resolved in December, began with the tax
bureau's seizure of the NGO's financial documents
spanning January 2006 to December 2008. (Note: Due to
the difficulty of registering a nongovernmental
organization in China, most NGOs here register as
companies, necessitating tax assessments. End note.)
Zhang claims that one of the tax officials present at the
July seizure said that the local Public Security Bureau
(police) had sent the Taxation Bureau to investigate the
NGO even though it was rare for tax officials to
scrutinize such a small operation. After a further three
months of investigation, the Taxation Bureau recommended
payment of assessed back and current taxes as well as a
50% penalty, according to Zhang. Zhang says that "other
government departments" did not concur until the penalty
was revised to 300%, the maximum possible.


3. (C) Zhang ultimately borrowed money to pay the more
than RMB 79,000 (approximately US$12,000) fine. He has
appealed to the Shenzhen Municipal Taxation Bureau for an
"administrative review," which is scheduled to be decided
within sixty days. Zhang says he is pessimistic about
his chances to have the fine reversed. Zhang claims that
the Taxation Bureau told him that the bureau had no
intention to make things difficult for him, but that it
was acting on instructions of security officials.
(Comment: If what Zhang says is true, the Taxation
Bureau's comments were surprisingly frank. End comment.)

Other NGOs Watch, Wait
--------------


4. (C) Directors of other Shenzhen and Guangzhou-based
labor NGOs wonder whether Spring Breeze was able to keep
good financial records without employment of a
professional accountant. Shenzhen Zhi Qiang Information
Consulting Service Director Zhu Qiang said that, like his
organization, many NGOs hire accounting firms to take
care of their financial matters. Zhu added, however,
that if the government wished to punish or pressure
someone it was impossible to avoid it. Shenzhen Ren Zai
Ta Xiang Labor Service Director Li Yan said he was
unaware of any other labor NGO in Shenzhen that had been
targeted recently by the tax authorities. Guangzhou
Pearl River Workers Service Center Director Jing Xiang
said that hearing of Spring Breeze's troubles had worried
him, but he, too, had not seen any signs that zealous tax
enforcement of NGOs was becoming a pattern.


5. (C) Comment: Zhang admits that for years his
organization has only paid "symbolic" amounts of tax each
month due to limited funds. Though it is possible that
law enforcement officials selectively tipped off the tax
authorities to Spring Breeze's unpaid taxes, the lack of
any pattern of unfair enforcement of other labor NGOs'
tax dealings suggests that this is an isolated case and
not part of a trend.

JACOBSEN