Mainland authorities will begin imposing reduced levy of 3 per cent on June 1
Share prices of expressway operators were driven higher yesterday by prospects of bigger profits after China surprisingly decided to cut the tax on toll-road revenue.
The Ministry of Finance and the State Tax Bureau will implement a national policy of reducing the business tax on toll revenue to 3 per cent from 5 per cent on June 1.
Some expressway operators welcomed the move, describing it as a much-needed incentive to future infrastructure investment after recent compulsory toll fee cuts on some highways and toll fee reclassification.
Others believed the new policy clarified the classification of taxation on toll-road companies, with operators complaining that the former rate was based on taxation for the provision of services.
Welcoming the tax cut, Anhui Expressway company secretary Xie Xinyu said: 'Formerly, toll-road companies were classified as provider of services, that's why the 5 per cent tax rate was based on service tax. The new policy means they will be classified as transport firms and their business tax will be aligned with transport tax.'
Zhejiang Expressway, one of the country's most profitable toll-road companies, expected the new policy would bring about annual tax savings of more than 60 million yuan, said Zhang Jingzhong, director and deputy general manager.
'It is very good news,' he said. 'It will instantly benefit our profit.'
He added that the policy would encourage companies to continue investing in toll roads to meet soaring demand for road infrastructure. 'Investments in toll roads are huge and costs are high,' Mr Zhang said.
Among the H-share toll road companies, Anhui Expressway recorded the sharpest gain in share price. It jumped 3.33 per cent to $4.65 yesterday.
Sichuan Expressway followed with a 1.76 per cent rise to $1.15. Shenzhen Expressway was 1.75 per cent higher at $2.90.
Macquarie Research Equities analyst Lilian Leung believed Sichuan Expressway and Jiangsu Expressway would be the biggest beneficiaries of the policy as their net profit margins were lower than those of their sector peers.
She estimated that Sichuan Expressway's net profit margin would be 23.5 per cent and Jiangsu Expressway's would be 33.8 per cent this year, compared with a prospective range of 44.5 per cent to 67.4 per cent for other operators.
She expected that the tax cut would lead to a 3.3 per cent rise in Sichuan Expressway's net profit this year and 6.6 per cent next year.