Taxman cuts earnings at Sinopec Shanghai
Sinopec Shanghai Petrochemical has slashed its first-quarter net profit by 20 per cent after the local office of the State Administration of Taxation decided to strip the company of its preferential tax treatment from the start of this year.
The oil refiner and petrochemicals producer was among the first batch of nine H shares - mainland incorporated firms listed in Hong Kong - floated on the city's stock exchange in the early 1990s. It will have to pay the normal 33 per cent tax rate as of January 1.
The firm had enjoyed a 15 per cent rate introduced as part of a government policy to encourage companies to list overseas.
The rate increase has resulted in a 227 million yuan downward revision from the 1.07 billion yuan first-quarter net profit the company announced in April.
The preferential policy expired in 1995 and was later extended to 1997. However, doubts remain whether the central tax authorities effectively cancelled it, although it ordered local bureaus to halt the practice in June.
The order came before the harmonisation of corporate tax rates between domestic and foreign firms operating in the mainland.
The central tax authority has also asked for back-payment of taxes owed by the nine H-share firms since the supposed expiry of the preferential tax treatment in 1997. But the affected companies have lobbied heavily against it, claiming it would be unfair to shareholders.
'The local tax authority has not demanded us pay the back taxes so far but we can't rule out such a possibility yet,' said a Sinopec Shanghai spokesman.
Sinopec Yizheng Chemical Fibre, Maanshan Iron & Steel and Dongfang Electrical Machinery, which may be among the most affected as they have the lowest effective tax rates among the nine, said they are still in talks with local tax bureaus.