Alibaba Group Holding Ltd (阿里巴巴) has warned investors that years-long government tax breaks for the Internet industry would start to dwindle, adding billions of US dollars in costs for China’s largest corporations as Beijing extends its campaign to rein in the sector.
China’s No.1 e-commerce company told some investors during post-earnings calls this week that the government stopped treating some of its businesses as so-called Key Software Enterprises (KSE) — a designation that conferred a preferential 10 percent tax rate, people familiar with the matter said.
The Tmall (天貓) operator forecasts an effective tax rate of 20 percent for the September quarter, up from just 8 percent a year ago, the people said, asking not to be identified discussing private conversations.
Photo: Bloomberg
However, Alibaba said that most Internet companies would likely no longer enjoy the 10 percent rate, they added.
The move reflects Beijing’s tightening regulatory approach toward its largest tech companies from Alibaba to Tencent Holdings Ltd (騰訊) and Meituan (美團), which have come under fire for using their troves of data to enrich investors at the expenses of users.
On Thursday, the state-backed newspaper Securities Times said in an op-ed that China should scrap tax breaks to gaming companies, because now they are big enough to thrive on their own.
“Because the preferential tax rates related to KSE are subject to annual review by the relevant tax authorities in China, there is always risk that companies that apply would not be granted the tax benefit,” Citigroup analyst Alicia Yap wrote in a research note yesterday. “The argument basis sounds reasonable given a tightening regulatory environment and recent anti-trust investigation and fines on the Internet sector.”
China’s effort to free up more tax revenue reflects a global trend. A tax deal struck between the world’s richest countries this year brought global governments a step closer toward clawing back some power from technology giants that have used century-old regimes to build up wealth eclipsing the economies of most nations.
The Chinese government has over the years handed out a wide range of tax incentives and financial aids to its now giant Internet sector. While the standard corporate income tax rate is 25 percent, those who qualify as high-tech enterprises enjoy a 15 percent rate and an even-more generous 10 percent rate is awarded to those deemed to operate essential software.
The removal of such incentives demonstrates Beijing’s willingness to go after private enterprises to address social inequities and rein in powerful interests. Its campaign against big tech is now entering its 10th month, a roller-coaster ordeal that is prompting nervous investors to ponder the longer-term ramification of a crackdown that quickly spread from Jack Ma’s twin giants of Ant Group Co (螞蟻集團) and Alibaba to others like Tencent and gig-economy leaders Meituan and Didi Global Inc (滴滴).
The loss of the preferential tax status at its core marketplaces like Taobao (淘寶) and Tmall could mean Alibaba would miss out on a tax benefit of about 11 billion yuan (US$1.7 billion) for this fiscal year, Bocom International Holdings Co analyst Connie Gu estimated.
For the September quarter last year, Alibaba recognized tax credits of about 6.1 billion yuan after tax authorities renewed the KSE status for some subsidiaries, it said in its earnings statement at the time.
That tax benefit meant Alibaba paid an 18 percent effective tax rate for fiscal 2021, during which it swallowed a record US$2.8 billion antitrust penalty.
The company told investors its effective tax rate for fiscal 2022 could rise to 23 percent to 25 percent, the people said, adding that some businesses will continue to enjoy the 15 percent rate for high-tech enterprises.
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
RSS