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.
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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