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.
Taiwan’s foreign exchange reserves fell below the US$600 billion mark at the end of last month, with the central bank reporting a total of US$596.89 billion — a decline of US$8.6 billion from February — ending a three-month streak of increases. The central bank attributed the drop to a combination of factors such as outflows by foreign institutional investors, currency fluctuations and its own market interventions. “The large-scale outflows disrupted the balance of supply and demand in the foreign exchange market, prompting the central bank to intervene repeatedly by selling US dollars to stabilize the local currency,” Department of Foreign
Intel Corp is joining Elon Musk’s long-shot effort to develop semiconductors for Tesla Inc, Space Exploration Technologies Corp and xAI, marking a surprising twist in the chipmaker’s comeback bid. Intel would help the Terafab project “refactor” the technology in a chip factory, the company said on Tuesday in a post on X, Musk’s social media platform. That is a stage in the development process that typically helps make chips more powerful or reliable. The chipmaker’s shares jumped 4.2 percent to US$52.91 in New York trading on Tuesday. The Terafab project is a grand plan by Musk to eventually manufacture his own chips for
Taiwan Power Co (Taipower, 台電) yesterday said it plans to resume operations at two coal-fired power generators for three months to boost security of electricity supply as liquefied natural gas (LNG) supply risks are running high due to the Middle East conflict. The two coal-fired power generators are at Mailiao Power Plant in Yunlin County’s Mailiao Township (麥寮). The plant, operated by Formosa Plastics Group (台塑集團), supplied electricity to Taipower’s power grid until the end of last year. Taipower’s decision came about one month after Minister of Economic Affairs Kung Ming-hsin (龔明鑫) on March 10 said that the nation had no imminent
Some robotaxi passengers were left stranded in the middle of fast-moving traffic in a major Chinese city after their driverless vehicles stopped running, according to police and media reports on Wednesday. A preliminary investigation indicates more than 100 robotaxis came to a halt because of a “system malfunction,” police in the city of Wuhan said in a statement, without elaborating. No injuries were reported. One passenger told Chinese media that their robotaxi stopped after turning a corner. An instruction on a screen read: “Driving system malfunction. Staff are expected to arrive in 5 minutes.” After no one showed up, the passenger pushed
RSS