Tax breaks boost software firms

BEIJING - Chinese software shares rose on Thursday on the government's latest policies to promote the software and integrated circuit (IC) industries.

The State Council said in a statement issued on Wednesday that software companies will continue to enjoy preferential value-added tax treatment and will be granted new income tax exemptions.

Industry analysts expect the new stimulus plan, which includes preferential tax policies and support for research and development (R&D), will increase the profits of domestic software companies.

"According to our estimates, the income tax cut alone will provide an additional 5 to 10 percent profit to Chinese software companies this year," said Haitong Securities in a research note on Thursday.

The nation's major software companies were boosted by the new plan. Neusoft Corp rose 3.09 percent and China National Software & Service Co Ltd surged 5.04 percent in Shanghai trading on Thursday.

Government figures show that the Chinese software industry has grown at an average rate of 28 percent during the past five years, following average growth of 45 percent between 2001 and 2005.

Under the new policy, companies that have been in operation for more than 15 years will be exempt from corporate income taxes in their first to fifth years after reaching profitability. Between the sixth and the 10th years, those companies will pay 50 percent of the taxes.

IC manufacturers with products less than or equal to 0.8 microns wide will be exempt from corporate income taxes in the first and the second years after reaching profitability.

Figures from the Ministry of Industry and Information Technology indicate that software industry sales in China reached $203 billion by the end of 2010, an increase of 31 percent from 2009.

The government also encouraged consolidation in the software and IC industries and will provide financial support for technological R&D, the statement said.

China Daily

(China Daily 02/11/2011 page16)