China raises taxes on some sectors to boost finances: a one-off fix or tough times ahead?
A broader push to raise taxes across the private sector is not on the cards, economists say
Beijing has recently targeted tax incentives in telecoms and other select industries after fiscal revenue dropped sharply in late 2025, fuelling market speculation of similar, larger-scale moves and triggering volatility.
Here, we examine the latest developments and outline how economists view the changes.
What has the Chinese government announced?
On Sunday, select telecoms services – mobile data, SMS/MMS and broadband access – were reclassified from the 6 per cent “value-added services” bracket to the 9 per cent “basic services” rate under Beijing’s value-added tax (VAT) structure. The change aligns taxation with the sector’s role as “essential digital infrastructure”, according to a Morgan Stanley report released on Tuesday.
What do the changes entail?
The adjustment addresses category inconsistencies rather than signalling a broader push to raise effective tax burdens across private-sector services, said Robin Xing, chief China economist at Morgan Stanley and lead author of the report.
Broad-based tax hikes “would be counterproductive”, he added, noting that raising VAT in an environment of weak demand would suppress consumption and investment and could reinforce disinflation. The report suggested that the contractionary effects of tax hikes often erode much of the stimulus they intend to finance.