New VAT may drive China's mobile operators to cut costs
Market leaders are likely to reduce mobile-phone subsidies as the upcoming value-added tax will erode at least 6pc of their revenue
The value-added tax that the mainland's telecommunications companies face later this year might force the three wireless operators to cut expenses, including subsidies promoting smartphone usage, analysts say.
Beijing would use the tax to replace the existing business tax in several service industries, including the telecommunications sector, Premier Li Keqiang reiterated this week.
A trial of the tax has been conducted since 2012 in certain sectors, including public transport, in several cities.
Business tax was about 3 per cent of revenue, said Ricky Lai, an analyst at Guotai Junan International. He said the value-added tax was expected to be at least 6 per cent of revenue, weighing on the earnings of telecommunications firms.
It is impossible for the operators to transfer their [tax] burden to consumers
The new tax might reduce the annual net income of China Mobile, China Unicom and China Telecom by as much as 9 per cent, he said.
