China to impose VAT on telecom services

Dylan Bushell-Embling
06 Mar 2014

Chinese premier Li Keqiang has announced plans to introduce a value-added tax (VAT) on telecom services to replace an existing 3% business levy.

Li has not yet given details of the size of the tax or when it will start to be imposed. But a Hong Kong financial analyst toldBloomberg he expects the tax to impact net income at China Mobile, China Telecom and China Unicom by around 9%.

Analysts expect the VAT to be between 6% and 11% of revenues. Operators will likely be able to deduct some costs out of the tax. The impact on income will depend on the percentage chosen.

The older business tax was based on gross revenue, while VAT is levied based on individual products' or services' revenue margins.

The VAT will also be applied to the rail and postal industries, Li said.

The tax reform is the Chinese government's latest in a line of policy changes covering the nation's telecom industry. In January, the government approved foreign investment in VAS services within the Shanghai Free Trade Zone. The government has also recently instructed China's mobile operators to conduct a two-year trial involving providing MVNO licenses to brands including Alibaba.

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