Tax charges fox experts
Analysts are scratching their heads over the sharp fall in the tax charge in the year-end result of Cheung Kong (Holdings), a fall which helped to inflate the after-tax profit the group announced on Thursday.
'I cannot figure out why the company's tax expenses were so low,' one analyst said.
According to the full profit-loss account of the territory's property developer, which was released at 1 am yesterday, tax charges last year fell 36.6 per cent to $1.38 billion, compared with $2.18 billion in 1994.
The sudden drop in tax helped Cheung Kong post a 10 per cent rise in attributable profit to $11.12 billion.
Profit before tax fell 4.4 per cent to $12.57 billion from $13.15 billion.
Belying its heavyweight status, Cheung Kong, which has been criticised frequently for keeping its shareholders in the dark about the shares and bonds it trades, gave only a summary of its results on Thursday.
The summary failed to highlight that the profit increase was helped mainly by the fall in tax expenses.
The decline caught the market by surprise and prompted questions from followers of the company.
Analysts suggested that Cheung Kong might have deferred some taxes to the current year and expected more taxes to be paid this year.
UBS Securities property analyst Terry Ip said: 'I predicted there would be a drop in tax charges but just did not expect such a substantial decline.' He said his prediction of a fall stemmed from the fact there was no tax payable on $700 million in capital gains generated from the firm's sale of shares in its 44 per cent-owned associate, Hutchison Whampoa.
Analysts said that on that basis the fall should be less than 36 per cent. Cheung Kong would not comment yesterday.
DBS Securities property analyst Winnie Chiu said the company's tax charges in 1995 coincidentally fell within her forecasts, but she said forecasting Cheung Kong's tax was, to an extent, guesswork.
Analysts said that, historically, tax payments usually accounted for 13 per cent of Cheung Kong's pre-tax profit. The percentage was up to 16 per cent in the 1994 financial year and fell to 11 per cent last year.
