VAT reform on China's telecom carriers delayed

VAT reform on China's telecom carriers delayed

Summary: China's plan to impose a value-added tax (VAT) on telecom services since April will reportedly be postponed. This will be slight relief for carriers, whose profits worth of tens of billions yuan will be dented once it is implemented.

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TOPICS: Telcos, Legal, China
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As part of the country's tax and fiscal reforms, the VAT which was initially planned to be imposed on the Chinese carriers from April 1, is likely to have been put off as all the three major carriers — China Mobile, China Unicom and China Telecom – said they didn't receive any notice from the regulators till today, according to a Sina news report on Friday.

Once the new rule is adopted, which will replace the current business tax of a mere 3 percent imposed on the carriers, with the VAT which is expected to be more than double at either 6 percent or 11 percent on different services sectors,  the three major telecom carriers is estimated to be taxed tens of billions yuan more in the future, said the report.

Despite profit registered the first decrease since 1999, the world’s largest mobile carrier by subscribers China Mobile still managed to make a net profit of 121.8 billion yuan (US$19.6 billion) in 2013, the company announced in late March.

The smaller China Telecom and China Unicom have both fetched net profits of 17.5 billion yuan and 10.5 billion yuan for the whole year of 2013, respectively, the two listed companies announced earlier this year.

The market generally expects telecom carriers to be taxed under "basic telecommunications services" and "value-added telecommunications services" segments, a VAT rate of either 6 percent or 11 percent will be adopted under the new rule, said the Sina report.

Once a VAT of 11 percent is imposed on the Chinese carriers to replace the current 3 percent business tax, the net profit of China Mobile is likely to decrease 7 percent while profits among China Telecom and China Unicom are expected to disappear by up to 25 percent, said the report.

The Chinese government has been dedicated to expanding the VAT reform, declaring that the railway industry, transportation industry, postal industry as well as telecom industry will be included in the new round of tax reform, according to a Xinhua news report in January.

Currently, transportation services and postal services are taxed at 11 percent while logistics sectors are taxed at 6 percent. But the VAT reforms on Chinese telecom carriers have been stalled. The Xinhua report said earlier that the new tax regime on telecom sector will take place in April.

Topics: Telcos, Legal, China

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