China has put a 13 per cent value added tax (VAT) on pipeline connection fees charged by mainland gas distributors to consumers, replacing a 3 per cent business tax on turnover. The move was expected to have an impact on the speed of market penetration and revenues of the gas companies, although the VAT would largely be passed on to consumers, analysts said. In its quarterly results announcement, Growth Enterprise Market-listed Zhengzhou Gas said the new tax would be levied on the pipeline construction fee of 1,800 yuan (HK$1,680) each new customer was charged. 'The new tax law implemented in January may have certain negative impacts on connection fees,' the company said. A tax consultant said VAT and business tax were mutually exclusive under China's tax regime, meaning either could be levied but not both. She believed the change was part of Beijing's ongoing efforts to bring the tax regime more into line with international practices. The change would remove a double hit on the companies, which were taxed on both turnover and profits. As VAT is collected by the central government and business tax by local governments, the change will also tighten Beijing's grip on tax collection in the industry. ING analyst Bill Mok said while the companies could in theory pass on the VAT to consumers and reap savings from elimination of the business tax, the end result would depend on the outcome of negotiations with customers. Property developers might not want to cough up large VAT payments for new projects and might bargain for lower connection fees, but the overall impact on gas companies should not be significant, Mr Mok said. Mr Mok added that implementation of the new tax policy had been delayed as local governments were still mulling over how it should be done. A source at a Hong Kong-listed gas distributor said the company had received the State Tax Bureau's notice in late March but that it had no implementation details. Tax authorities in less than a third of territories in which the company's more than 20 subsidiaries operated had implemented the VAT, he said.