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Removal Of Provincial Tax Rebates Will Affect Chinese H-Shares

Mary Swire, Tax-news.com, Hong Kong

16 August 2000

A report from BNP Prime Peregrine report says that provincial tax rebates will be going to fewer enterprises in future - only those where authorisation is given by the State Council.

The tax rebates affect the results of Chinese H-share issues, for instance Jiangsu Express (0177-HK) and Zhejiang Express (0576-HK) and certain B-shares.

Other H-shares which have received the tax rebates until now include Anhui Conch (0914-HK), Anhui Expressway (0995-HK), Beijing North Star (0588-HK), ChongQing Iron (1053-HK), Guangzhou Pharmaceutical Company Limited (0874-HK), Northeast Elec (0042-HK), Shandong Xinhua Pharmaceutical (0719-HK), Shenyang Public (0747-HK) and Sichuan Express (0107-HK).

Although Shandong Xinhua Pharmaceutical did not make a full provision for taxation in the first half-year, it said that it will seek official clarification as to whether it will continue to enjoy the local rebates.

Under the World Trade Organisation (WTO) principle on national treatment, China will have to unify tax rates for different types of enterprises. However, WTO rules allow for a three- to five-year grace period after a country's accession to adopt the national treatment rule.

Assuming all H-shares pay corporate tax at 33% (ie that no rebates are recieved), overall 2000 "H" earnings will be reduced by only 2%, increasing 2000 P/E slightly to 9.1 times from 8.4 times.

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