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.
CHIP RACE: Three years of overbroad export controls drove foreign competitors to pursue their own AI chips, and ‘cost US taxpayers billions of dollars,’ Nvidia said China has figured out the US strategy for allowing it to buy Nvidia Corp’s H200s and is rejecting the artificial intelligence (AI) chip in favor of domestically developed semiconductors, White House AI adviser David Sacks said, citing news reports. US President Donald Trump on Monday said that he would allow shipments of Nvidia’s H200 chips to China, part of an administration effort backed by Sacks to challenge Chinese tech champions such as Huawei Technologies Co (華為) by bringing US competition to their home market. On Friday, Sacks signaled that he was uncertain about whether that approach would work. “They’re rejecting our chips,” Sacks
Taiwan’s long-term economic competitiveness will hinge not only on national champions like Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) but also on the widespread adoption of artificial intelligence (AI) and other emerging technologies, a US-based scholar has said. At a lecture in Taipei on Tuesday, Jeffrey Ding, assistant professor of political science at the George Washington University and author of "Technology and the Rise of Great Powers," argued that historical experience shows that general-purpose technologies (GPTs) — such as electricity, computers and now AI — shape long-term economic advantages through their diffusion across the broader economy. "What really matters is not who pioneers
BUBBLE? Only a handful of companies are seeing rapid revenue growth and higher valuations, and it is not enough to call the AI trend a transformation, an analyst said Artificial intelligence (AI) is entering a more challenging phase next year as companies move beyond experimentation and begin demanding clear financial returns from a technology that has delivered big gains to only a small group of early adopters, PricewaterhouseCoopers (PwC) Taiwan said yesterday. Most organizations have been able to justify AI investments through cost recovery or modest efficiency gains, but few have achieved meaningful revenue growth or long-term competitive advantage, the consultancy said in its 2026 AI Business Predictions report. This growing performance gap is forcing executives to reconsider how AI is deployed across their organizations, it said. “Many companies
TAIWAN VALUE CHAIN: Foxtron is to fully own Luxgen following the transaction and it plans to launch a new electric model, the Foxtron Bria, in Taiwan next year Yulon Motor Co (裕隆汽車) yesterday said that its board of directors approved the disposal of its electric vehicle (EV) unit, Luxgen Motor Co (納智捷汽車), to Foxtron Vehicle Technologies Co (鴻華先進) for NT$787.6 million (US$24.98 million). Foxtron, a half-half joint venture between Yulon affiliate Hua-Chuang Automobile Information Technical Center Co (華創車電) and Hon Hai Precision Industry Co (鴻海精密), expects to wrap up the deal in the first quarter of next year. Foxtron would fully own Luxgen following the transaction, including five car distributing companies, outlets and all employees. The deal is subject to the approval of the Fair Trade Commission, Foxtron said. “Foxtron will be
RSS