This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Will China's Telecoms Dodge a Major Tax Bullet?

BEIJING (TheStreet) -- Between the lines of an otherwise dull announcement about building mobile phone towers was an assurance for investors that China's telecom operators expect to weather the storm of a new tax regime.

That assurance in the face of a tough VAT regime announced this week by the government helped China Mobile (CHL), China Telecom (CHA - Get Report) and China Unicom (CHU - Get Report) survive a tumultuous trading session Friday on the Hong Kong Stock Exchange.

Shares in each of the state-run carriers opened sharply lower following the May 1 holiday after the Beijing government unveiled the tax plan late Wednesday. Telecom services will be taxed starting June 1 in a way that, according to the companies, could slash annual earnings up to 36%.

On the tax announcement, telecom share prices slipped as much as 3.5% during the trading day before rebounding. China Mobile closed 0.8% lower at HK$73.10 per share, China Unicom finished down 1.8% at HK$11.68, and China Telecom ended the day unchanged at HK$3.98.

Investors apparently found solace in separate China Mobile and state media announcements Friday that the three carriers had formed a joint venture to build towers nationwide -- perhaps 750,000 units this year alone -- to carry fourth-generation (4G) Internet and mobile phone signals.

The investment project is expected to offset at least some of the higher taxes because, according to VAT rules imposed by the government's State Administration of Taxation, capital expenditures will be deductible under the new regime.

And the joint venture, tentatively named "State Tower," has a massive and expensive job ahead.

This year alone China Mobile plans to add 500,000 towers to accommodate 4G customers, state media said Friday, while China Telecom could install up to 250,000 towers. Similar building plans have yet to be announced at China Unicom, which got regulatory permission to offer 4G services only last month.

The new 11% VAT on basic telecom services and 6% on value-added services will replace the current 3% business tax, the government said.

China has been slowly phasing out its business tax industry by industry and phasing in the VAT, which is easier to levy and, officials say, fairer for taxpayers. A VAT for the cargo and logistics industries came into full force last September, and railroad services are slated to be added by 2015.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CHA $62.43 0.00%
CHU $15.59 0.00%
CHL $64.75 0.00%
AAPL $129.36 0.00%
FB $79.60 0.00%

Markets

DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs