The senior management at China Mobile, China Unicom and China Telecom have suggested that the domestic telecoms industry “will most likely start recognising VAT from the beginning of 2014”, says a Barclays research note.
“We view VAT reform as a confusing transition, given that many of the specifics are still unknown,” said Anand Ramachandran, lead author of the Barclays report and the firm’s head of telecommunications, internet and media equity research for Asia, excluding Japan. “We believe there is potential downside risk to the entire sector’s profitability.”
The State Council implemented the VAT programme, which started as a province-by-province pilot project, to boost productivity in various industries and lessen their tax burden. Post and telecoms, financial services and insurance, and construction and real estate are among those yet to transition to VAT.
Operators currently pay a 3% business tax net of revenue. This will be replaced by a VAT on gross revenue at 6% or 11%, the specific rates of which are yet to be finalised, from next year. The tax rates for different services – voice, equipment sales and value-added offerings – are expected to be different.