Will the increase in VAT rates lead to price hikes for China Mobile, China Unicom, and China Telecom?

On February 1, China Mobile, China Unicom, and China Telecom, the three major telecommunications operators, collectively announced that the applicable scope of the value-added tax (VAT) for telecommunications services has been adjusted, with the tax rate changing from 6% to 9%, which will impact the companies' revenue and profits.

The announcement indicated that recently, the Ministry of Finance and the State Administration of Taxation issued the "Announcement on Matters Concerning the Specific Scope of VAT Collection" (Ministry of Finance, State Administration of Taxation Announcement No. 9 of 2026), stipulating that starting from January 1, 2026, within the territory of the People's Republic of China, the business activities of providing mobile data services, SMS and MMS services, and internet broadband access services using fixed networks, mobile networks, satellites, and the internet will have their tax category adjusted from value-added telecommunications services to basic telecommunications services, with the corresponding VAT rate changing from 6% to 9%. At the same time, all three operators mentioned in the announcement that this adjustment in the applicable scope of VAT will impact the companies' revenue and profits.

As a result, on February 2, the stock prices of the three major operators fell collectively in both A-shares and H-shares. By the close of that day, China Mobile's A-share price fell by 3.86% to 92.66 yuan/share, and its H-share price fell by 2.26% to 78 Hong Kong dollars/share; China Unicom's A-share price fell by 5.48% to 4.83 yuan/share, and its H-share price fell by 6.29% to 7.45 Hong Kong dollars/share; China Telecom's A-share price fell by 4.33% to 5.74 yuan/share, and its H-share price fell by 5.02% to 5.11 Hong Kong dollars/share. The total market values of the three companies were 2.01 trillion yuan, 151.01 billion yuan, and 525.25 billion yuan, respectively, decreasing by 80.5 billion yuan, 23.8 billion yuan, and 8.8 billion yuan compared to the previous day, totaling a reduction of over 100 billion yuan.

"The core attraction of operators as dividend stocks for investors does not come from short-term performance growth, but rather from stable and high dividend ratios, which directly stem from net profits after tax. This is also the valuation basis for operators.

With the tax rate increase, if the operators' net profits after tax are compressed, the distributable profits will decrease accordingly, and the dividends that investors can receive will naturally shrink, which directly undermines the core valuation anchor of operators as a dividend sector. This is also an important reason for the decline in operators' stock prices on February 2. However, this should be considered a one-time negative impact," a private equity investor told Caijing.

Some tax rates adjusted from 6% to 9%

It is understood that the essence of this adjustment is the "repositioning" of tax categories, rather than an increase in tax burden. According to public information, the voice call services of the three major operators were classified as "basic telecommunications services," subject to a 9% tax rate; while SMS and MMS services, mobile data services, and internet broadband access services were classified as "value-added telecommunications services" during the pilot program of the VAT reform, subject to a 6% tax rate With the development of technology, mobile internet, broadband access, and SMS/MMS communication services have become basic services in today's digital age. Therefore, this tax rate adjustment will align the tax classification with the actual situation and further clarify the public nature of basic communication services.

"The collective announcement by the three major operators regarding the adjustment of the value-added tax rate reflects the redefinition of tax policy concerning the current attributes of telecommunications business. This will encourage operators to focus more on core businesses such as network construction and service assurance, reduce homogeneous marketing competition, enhance overall operational efficiency in the industry, and support the high-quality development of digital economy infrastructure," industry insiders analyzed.

It is worth noting that some consumers are concerned whether this tax rate adjustment will lead the three major operators to raise prices for services such as mobile internet and broadband access. In this regard, some analyses pointed out that the tax rate for voice calls was originally 9% and is not affected by this adjustment, but the tax rates for broadband, SMS, and other services have increased by 3 percentage points, which may lead to price increases. Although theoretically, the three major operators could pass the tax burden onto consumers, whether prices will actually rise depends on the elasticity of consumer demand, which remains to be observed.

In response, the three major operators stated in their announcements that they will continue to enhance operational efficiency, focus on high-quality development, and accelerate the transition to emerging fields such as artificial intelligence and cloud services to mitigate the impact of this tax rate increase.

China Mobile stated that it will adhere to its main responsibilities and strive to strengthen, optimize, and expand communication services, computing power services, and intelligent services, insisting on strengthening the network foundation, promoting full-stack innovation, deepening lean management, improving quality and efficiency, and accelerating the construction of a world-class technology service enterprise.

China Unicom stated that it will adhere to innovation while maintaining integrity, focus on its main responsibilities, and concentrate on the core tracks of connectivity, computing power, services, and security, fully creating differentiated advantages, further enhancing operational efficiency, and promoting the company's high-quality and stable development.

China Telecom stated that it will fully implement the strategy of cloud transformation and intelligent benefits, accelerate the construction of technology-based enterprises, comprehensively promote AI+ actions, continuously create integrated intelligent cloud services of "computing power + platform + data + model + application," accelerate the cultivation of new development momentum, promote quality improvement, cost reduction, and efficiency enhancement, and continuously advance the company's high-quality development.

What is the impact on company profits?

From a fundamental perspective, in recent years, as the revenue growth of traditional businesses such as personal mobile communications has gradually slowed, businesses related to digital transformation for government and enterprises have become new growth points, and the performance of the three major operators has maintained a steady growth trend.

Financial reports show that as of the first three quarters of 2025, China Mobile achieved total operating revenue of 394.3 billion yuan, a year-on-year increase of 0.41%, and achieved a net profit attributable to shareholders of 115.4 billion yuan, a year-on-year increase of 4.03%, making it the company with the highest revenue and profit among the three major operators.

During the same period, China Telecom has maintained steady growth in recent years thanks to its Tianyi Cloud Computing business, achieving operating revenue of 394.3 billion yuan, a year-on-year increase of 0.59%; and a net profit attributable to shareholders of 30.77 billion yuan, a year-on-year increase of 5.03%. China Unicom achieved operating revenue of 293 billion yuan, a year-on-year increase of 0.99%; and a net profit attributable to shareholders of 8.772 billion yuan, a year-on-year increase of 5.02% Under the premise of steady performance growth, the three major telecom operators have continuously increased their dividend payout ratios in recent years, becoming representatives of high-dividend and high-yield stocks in the capital market. Financial reports show that China Mobile's dividend payout ratio increased from 38.6% in 2021 to 72.6% in 2024, with total dividends of 100.5 billion yuan in 2024; China Telecom's dividend payout ratio rose from 59.94% in 2021 to 72.01% in 2024, with total dividends of 23.77 billion yuan in 2024; China Unicom's dividend payout ratio increased from 42.49% in 2021 to 54.73% in 2024, with total dividends of 4.942 billion yuan in 2024.

From 2023 to 2024, the three major telecom operators benefited from the capital market's dividend style, with stock prices rising against the trend of the overall market index decline. Among them, China Mobile's stock prices rose by 66.56% and 25.79% in 2023 and 2024, respectively, at one point becoming the highest-valued company in the A-share market; China Telecom's stock prices increased by 41.83% and 42.37% in 2023 and 2024, respectively; China Unicom's stock performance was relatively weak, with stock prices rising by 0.55% and 26.59% in 2023 and 2024, respectively.

However, from 2025 to the present, due to a shift in market style towards growth, the stock performance of the three major telecom operators has been poor since 2025, with China Mobile, China Unicom, and China Telecom's A-share stock prices falling by 10.86%, 0.53%, and 9.3%, respectively, in 2025, and by 8.3%, 5.48%, and 8.89%, respectively, from 2026 to the present.

What impact does this tax rate adjustment have on the after-tax profits and dividends of the three major telecom operators?

From the operators' financial reports, it can be seen that the proportion of value-added tax in the total tax burden is about 20%.

China Mobile's financial report shows that the applicable taxes include corporate income tax, value-added tax, property and land tax, urban maintenance and construction tax, and stamp duty. According to the 2024 report, the total amount of taxes paid is 59.828 billion yuan, of which the income tax expense is 39.86 billion yuan, and the taxes and surcharges including property and land tax, urban maintenance and construction tax, education surcharge, and stamp duty amount to 3.759 billion yuan, with a total tax amount of 43.619 billion yuan, accounting for 72.9% of the total tax burden.

China Telecom's 2024 financial report shows that its payable taxes amount to 5.388 billion yuan, of which corporate income tax is 2.41 billion yuan, individual income tax is 1.41 billion yuan, value-added tax is 1.02 billion yuan, property tax is 224 million yuan, education surcharge is 39 million yuan, and others amount to 294 million yuan, with value-added tax accounting for 18.93% of the payable taxes.

China Unicom's 2024 financial report shows that its payable taxes amount to 2.716 billion yuan, of which the payable corporate income tax is 920 million yuan, the payable individual income tax withheld is 758 million yuan, the payable value-added tax is 644 million yuan, the payable property tax is 148 million yuan, and others amount to 247 million yuan, with value-added tax accounting for 23.7% of the payable taxes Some tax experts believe that attention should be paid to whether the relevant telecommunications service charges will be adjusted in the future, especially for services currently priced at tax-inclusive rates. If the tax rate increases while the tax-inclusive price remains unchanged, the pre-tax revenue of operators will correspondingly decrease, compressing profit margins.

According to UBS's calculations, this VAT adjustment will impact the service revenue of operators by approximately 1.5% to 2%. Assuming a corporate income tax rate of 25% and not considering other costs or tax deduction measures, based on the 2025 net profit forecast, China Mobile, China Telecom, and China Unicom are estimated to be affected by approximately 9%, 17.9%, and 18.2%, respectively.

In early January this year, Goldman Sachs released a research report downgrading the ratings of China Telecom and China Unicom to "Neutral." Goldman Sachs stated in the report that it holds a positive view on the shift of capital expenditure by Chinese operators from traditional telecommunications networks to artificial intelligence computing infrastructure and new business expansion, but the growth of service and innovative businesses in the mainland telecommunications industry is under short-term pressure.

Huatai Securities believes that the technological transformation of the three major operators will lead to an optimization of revenue structure, while AI (artificial intelligence) operations and maintenance will bring down costs. The impact of the VAT adjustment on the total revenue of operators is estimated to be about 1.3%-1.4%. Additionally, the final impact on profits may be lower than the direct calculation value for four main reasons: first, the adjustment of tax rates in the telecommunications service industry is not the first time; in 2014, the telecommunications industry also faced a "business tax to value-added tax" policy adjustment, resulting in a profit impact of less than 10%, which was lower than the previous estimate of 18%-30%; second, the three major operators are accelerating their transformation into technology companies, and as the proportion of revenue from emerging businesses represented by IDC (Internet Data Center) and computing power services increases, it is expected to alleviate the impact of VAT in the long term; third, AI promotes the optimization of network operation and maintenance processes, leaving further room for cost reduction; fourth, operators are expected to partially offset the impact of VAT through improved pricing mechanisms, marketing models, and package designs.

Huatai Securities stated that although the adjustment of VAT categories will have a certain degree of impact on the short-term performance of each telecommunications operator, the operators' profitability and cash flow remain stable, and dividends are attractive. Their digital businesses are expected to benefit from the long-term logic of the domestic AI application industry development, which has not changed, and they remain a rare investment variety with both dividend and technology attributes.

Tianfeng Securities stated that the three major telecommunications operators are adjusting the VAT for some businesses from 6% to 9%, and the short-term impact does not change the long-term positive trend, insisting on vigorously developing new businesses such as intelligent computing. They noted that the three major operators are operating steadily, and although ARPU (average revenue per user) is under short-term pressure, the proportion of ARPU from value-added and equity businesses is gradually increasing, while the impact of one-time package downgrades is expected to be eliminated, and mobile communication business revenue is expected to stabilize in the future. On the cost side, there is room for optimization in operation and maintenance, depreciation and amortization, personnel, and inter-network settlement, which can ensure steady growth in net profit; at the same time, continuous improvement in dividend payouts can provide a considerable dividend yield.

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