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Market to gain from unified tax rule

By Fei Ya (China Daily)
Updated: 2007-01-05 10:04

The unification of the corporate income tax rate for local and foreign-funded companies will be a positive for the A-share market in 2007.

The corporate tax unification bill is likely to be passed by the National People's Congress in early March and would be effective from January 1, 2008.

Related readings:  Chambers OK new tax law  Experts: Reform won't shrink FDI Unified 25% corporate tax proposed

For domestic firms, the tax rate will be cut from the current 33 percent to 25 percent, while for foreign-invested companies, the tax rate will rise from the current 15 or 24 percent to 25 percent over a five-year transition period. The new tax system will be based more on sectors than regions.

Analysts pointed out that there would be an average 6 to 8 percent overall net profit gain for A-share companies. And over the three- to five-year phase-in period, the gain would rise to 9 percent.

This provides a positive outlook for institutional investors on the performance of listed companies.

Banks, telecom companies and the food and beverage industry will benefit the most from the new tax policy, according to analysts. The average net profit of the banking sector is expected to increase by over 10 percent with the new tax policy.

"The tax reform is especially positive for banks, as a bank will see a 1.5 percent profit gain for a 1 percent tax cut. Since banks' income tax will be cut from 33 percent to 25 percent, there will be a profit increase of as much as 12 percent," said Ling Xuewen, an analyst with a stock consultancy firm based in Guangzhou.

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