UBS: The increase in value-added tax for mainland telecom operators is estimated to impact the profits of China Mobile, China Telecom, and China Unicom by 9%, 18%, and over 18%, respectively

UBS published a report stating that the three major telecommunications operators in mainland China announced a value-added tax adjustment yesterday (1st). Starting from January 1st of this year, the tax rate for services involving mobile data, SMS/MMS, and internet broadband will be raised from 6% to 9%. The bank expects a significant negative impact on the profitability of the three major Chinese telecommunications operators, as the related revenue accounts for 45% to 60% of the estimated service revenue of the three telecom operators in 2025.

According to the bank's calculations, this value-added tax adjustment will affect the service revenue of telecommunications operators by approximately 1.5% to 2%. Assuming a corporate income tax rate of 25% and not considering other costs or tax deduction measures, the bank indicated that China Mobile (00941.HK), China Telecom (00728.HK), and China Unicom (00762.HK) are estimated to be impacted by approximately 9%, 17.9%, and 18.2% on their net profit forecasts for 2025, respectively.

According to the announcement, the three major Chinese telecommunications operators will continue to enhance operational efficiency, focus on high-quality development, and accelerate the transformation towards emerging fields such as artificial intelligence and cloud services to mitigate the impact of this tax rate increase