Insurer's stock falls sharply as salary tax issues hold up first full-year figures A last-minute results delay that has spooked investors in PICC Property and Casualty was caused by salary tax issues, according to sources. However, as the Beijing-based insurer remained tight-lipped over the delay, investors pounded the company's stock, slashing 5.26 per cent off the value of its Hong Kong-listed shares at one stage during trading yesterday. The shares closed 4.21 per cent down at $2.275, the lowest for the mainland's dominant non-life insurer since its debut on the stock market in November 2003. PICC was scheduled to report results yesterday but on Thursday unexpectedly announced that a board meeting to approve its first full-year figures since listing had been pushed to April 22. Sources familiar with the company said the delay stemmed from issues related to the application of a government policy introduced in 2003 that allowed the insurer to deduct more salary expenses from taxable income and lower its corporate income tax liabilities. 'PICC needs to sort out with the government some issues regarding how staff salaries are to be taxed,' a source said. A PICC spokeswoman said the delay was due to an inability to finalise the audited results on time. The late change accompanied by the company's reticence to explain has been received in the market with deep apprehension. 'The way they've handled it has sparked wild market speculation,' said one analyst. 'Some investors suspect a dispute between PICC and the auditor (Ernst & Young) or a change in management style.' 'No other insurance companies would postpone a results announcement in this fashion. Some people are saying this is a sign of really lousy corporate governance,' he said. The mainland government has traditionally capped state companies' tax-deductible salary expenses. Historically, PICC was permitted to claim only 800 yuan per employee per month as tax-deductible salary expenses, according to a September 2003 pre-marketing report of China International Capital Corp (CICC), which sponsored the insurer's international listing with Morgan Stanley. The insurance sector's high salaries meant an effective tax rate of 40 to 50 per cent for PICC, which earned net premiums of 40.4 billion yuan in 2003. Before its listing, the Ministry of Finance and the State Administration of Taxation lifted the threshold 'to a level such that effectively PICC shall pay no salary taxes [in 2003]', the CICC report said. The new policy reduced PICC's tax burden to below the statutory mainland corporate income tax rate of 33 per cent. A source said the 2003 salary expense was then used as a reference. The company could fully expense staff salaries in subsequent years as long as their growth rate was lower than increases in certain key financial indicators, such as revenue. However, tax liabilities on salaries might have re-emerged last year because of PICC's lacklustre financial performance. PICC's share of the mainland property insurance market fell 10 percentage points over a year earlier to 58 per cent last year, although non-life premium collection by all insurers rose 25 per cent, according to official data.