Affected by new telecommunications value-added tax regulations, a listed company expects net profit to decrease by over 6 million.

Some Value-Added Tax (VAT) rates for telecommunications services have increased from 6% to 9%.

Affected by this year’s VAT rate adjustment for certain telecom services, the revenue and profits of some companies have been impacted.

Recently, Shenzhen Tianwei Video Communication Co., Ltd. (002238.SZ) announced an update on the scope of VAT applicable to its telecom services.

Tianwei Video announced that the Ministry of Finance and the State Taxation Administration issued the “Announcement on the Specific Scope of VAT Taxation” (hereinafter referred to as the “VAT Announcement”), which stipulates that starting January 1, 2026, within the People’s Republic of China, activities providing mobile data, SMS, MMS, and internet broadband access via fixed networks, mobile networks, satellites, and the internet will be reclassified from value-added telecommunications services to basic telecommunications services. The applicable VAT rate will be adjusted from 6% to 9%. After communication with relevant tax authorities, this scope adjustment applies to the company’s wired broadband business and its subsidiaries.

Tianwei Video stated that this scope adjustment of VAT classification will impact the company’s revenue and profits, with an estimated reduction of about 6.37 million yuan in net profit for 2026.

Tianwei Video is a state-owned enterprise under the Shenzhen municipal government, mainly responsible for the construction, operation, and maintenance of cable TV networks in Shenzhen, as well as broadcasting 5G services, providing cable TV, broadband, and 4G mobile communication services, and expanding into data centers, TV shopping, and other diversified businesses.

According to Tianwei Video’s 2025 earnings forecast, the net profit attributable to shareholders is expected to be a loss of 160 million to 220 million yuan. In 2024, 2023, and 2022, the net profits were approximately -2.81 million yuan, 125.07 million yuan, and 110.16 million yuan, respectively.

Besides Tianwei Video, in February this year, China Mobile (600941.SH), China Unicom (600050.SH), and China Telecom (601728.SH) also announced that the VAT rate adjustment would impact their revenue and profits.

What specific adjustments have been made to the VAT rates for the telecom industry?

Currently, there are two VAT rates in the telecom sector: 9% and 6%. Basic telecommunications services are subject to a 9% rate, while value-added telecom services are taxed at 6%. The recent “VAT Announcement” issued by the fiscal and tax authorities includes an attachment titled “Notes on Sales of Services, Intangible Assets, and Real Estate,” which redefines the scope of basic and value-added telecom services, leading to corresponding adjustments in applicable tax rates.

Compared to previous regulations, the “Announcement” expands the scope of basic telecom services eligible for the 9% rate to include activities such as “mobile data services, SMS, MMS, and internet broadband access.” Previously, “mobile SMS, MMS, internet access services, etc.” were classified as value-added telecom services taxed at 6%. This is why the applicable tax rate for some telecom services has been adjusted from 6% to 9%.

Tian Zhiwei, Director of the Institute of Public Policy and Governance at Shanghai University of Finance and Economics, told First Financial that there had been ongoing disputes over the definitions of basic and value-added telecom services. The recent “Announcement” clarifies these definitions, resolving related disputes and reducing the compliance costs caused by differing interpretations between tax authorities and enterprises. Of course, this adjustment will increase the tax burden on relevant companies, but since the three major telecom operators are state-owned enterprises with certain monopolistic advantages, the overall impact is considered manageable.

Value-added tax is an indirect tax, and the tax burden is theoretically borne by the end consumers. Will the increased tax burden on these companies be passed on to consumers through higher service prices?

Several tax and finance experts interviewed by First Financial indicated that whether these telecom service providers will partially or fully pass the increased tax burden onto consumers depends on factors such as demand elasticity, industry competition, corporate profit margins, and pricing strategies. Price increases are possible, but further observation is needed.

According to the Ministry of Finance, in the first two months of this year, domestic VAT revenue reached 1.5838 trillion yuan, a year-on-year increase of 4.7%.