Will the increase in VAT rate lead to higher prices for China Mobile, China Unicom, and China Telecom?
With the VAT rate being raised, will the prices of mobile services from China Mobile, China Unicom, and China Telecom also go up?
Many consumers are concerned that this tax increase might result in higher charges for their mobile plans and related services.
It is important to understand how this adjustment could impact the telecommunications industry and whether users will bear the additional costs.

On February 1st, China Mobile, China Unicom, and China Telecom collectively announced that the scope of application for value-added tax categories on telecommunication services has been adjusted, with the tax rate changing from 6% to 9%, which will impact the companies’ revenue and profits.

The announcement states that recently, the Ministry of Finance and the State Taxation Administration issued the “Announcement on the Specific Scope of VAT Taxation” (Ministry of Finance and State Taxation Administration Announcement No. 2026-9), which stipulates that from January 1, 2026, within the People’s Republic of China, business activities that utilize fixed-line, mobile, satellite, and internet services to provide mobile data, SMS, MMS, and internet broadband access will have their applicable tax category changed from value-added telecommunication services to basic telecommunication services. The VAT rate for these services will be adjusted from 6% to 9%. At the same time, all three operators mentioned in the announcement that this adjustment of the scope of VAT categories will affect their revenue and profits.

As a result, on February 2nd, the stocks of the three major telecom operators in A-shares and H-shares collectively declined. By the close of that day, China Mobile’s A-share price fell 3.86% to 92.66 yuan per share, and its H-share price fell 2.26% to 78 Hong Kong dollars per share; China Unicom’s A-share price dropped 5.48% to 4.83 yuan per share, and its H-share price declined 6.29% to 7.45 Hong Kong dollars per share; China Telecom’s A-share price decreased 4.33% to 5.74 yuan per share, and its H-share price fell 5.02% to 5.11 Hong Kong dollars per share. The total market capitalization of the three companies was approximately 2.01 trillion yuan, 151.01 billion yuan, and 525.25 billion yuan, respectively, representing a decrease of 80.5 billion yuan, 23.8 billion yuan, and 8.8 billion yuan from the previous day, totaling a decline of over 100 billion yuan.

"Operators, as dividend stocks, are not primarily attractive to investors due to short-term performance growth, but because of stable and high dividend payouts, which are directly derived from after-tax net profits. This forms the basis of their valuation.

This tax rate increase, if it compresses the operators’ after-tax net profits, will reduce their distributable profits, and consequently, the dividends available to investors will shrink accordingly. This directly undermines the core valuation anchor of telecom operators as dividend stocks, which is a key reason for the stock price decline on February 2nd. However, this should be considered a one-time negative impact," a private equity investor told Caijing.

Part of the tax rate adjustment from 6% to 9%

It is understood that the essence of this adjustment is a “reclassification” of the tax categories rather than an increase in overall tax burden. According to publicly available information, the voice call services of the three major operators are classified as “basic telecommunication services” and are subject to a 9% tax rate; while services such as SMS, MMS, mobile data, and internet broadband access were classified as “value-added telecommunication services” during the pilot of the VAT reform, with a 6% tax rate.

With technological development, mobile internet, broadband access, and SMS/MMS services have become fundamental services in the digital age. Therefore, this tax rate adjustment aligns their tax classification with actual conditions and further clarifies the public attribute of basic communication services.

“The collective announcement of the VAT rate adjustment by the three major operators reflects a redefinition of the current telecom business attributes under tax policy. This will promote operators to focus more on core businesses such as network construction and service assurance, reduce homogeneous marketing competition, improve overall industry operational efficiency, and support high-quality development of digital infrastructure,” industry insiders said.

It is worth noting that some consumers are concerned whether this tax rate adjustment will lead to price increases for services like mobile internet and broadband access. In response, some analysts pointed out that the VAT rate for voice calls was already 9%, so it remains unaffected. However, the VAT rate for broadband, SMS, and other services has increased by 3 percentage points, which could lead to price hikes. Although theoretically, operators could pass the tax burden onto consumers, whether prices will actually rise depends on consumer demand elasticity and remains to be seen.

In response, all three operators stated in their announcements that they will continue to improve operational efficiency, focus on high-quality development, and accelerate transformation into emerging fields such as artificial intelligence and cloud services to mitigate the impact of this tax rate increase.

China Mobile said it will adhere to its main responsibilities, strive to strengthen and optimize its communication, computing, and intelligent services, promote network infrastructure, deepen lean management, and accelerate the construction of a world-class technology service enterprise.

China Unicom stated it will uphold innovation, focus on core businesses such as connectivity, computing power, services, and security, build differentiated advantages, further improve operational efficiency, and promote high-quality, steady development.

China Telecom announced it will fully implement the cloud transformation, accelerate the development of tech enterprises, promote AI+ initiatives, continuously develop integrated intelligent cloud services of “computing power + platform + data + models + applications,” foster new growth drivers, and enhance quality, reduce costs, and improve efficiency to sustain high-quality corporate development.

What is the impact on company profits?

From a fundamental perspective, in recent years, as revenue growth from traditional businesses like personal mobile communications has gradually slowed, digital transformation in government and enterprise sectors has become a new growth point. The performance of the three major operators has maintained steady growth.

Financial reports show that by the end of the third quarter of 2025, China Mobile achieved a total operating revenue of 394.3 billion yuan, a year-on-year increase of 0.41%, and a net profit attributable to the parent company of 115.4 billion yuan, up 4.03%. It remains the highest revenue and profit among the three operators.

During the same period, China Telecom maintained steady growth with cloud computing services, achieving revenue of 394.3 billion yuan, up 0.59%, and net profit attributable to the parent of 30.77 billion yuan, up 5.03%. China Unicom’s revenue was 293 billion yuan, up 0.99%, with a net profit attributable to the parent of 8.772 billion yuan, up 5.02%.

With steady performance growth, the three operators have increased their dividend payout ratios over the past few years, becoming representatives of high-dividend, high-yield dividend stocks in the capital market. Financial reports show that China Mobile’s dividend payout ratio increased from 38.6% in 2021 to 72.6% in 2024, with a total dividend of 100.5 billion yuan in 2024; China Telecom’s payout ratio rose from 59.94% in 2021 to 72.01% in 2024, with dividends totaling 23.77 billion yuan; China Unicom’s payout ratio increased from 42.49% in 2021 to 54.73% in 2024, with dividends of 4.942 billion yuan.

From 2023 to 2024, benefiting from the capital market’s dividend style, their stock prices rose against the overall market decline. China Mobile’s stock price increased by 66.56% in 2023 and 25.79% in 2024, once becoming the highest market cap company in A-shares; China Telecom’s stock rose 41.83% and 42.37% in the same years; China Unicom’s stock performance was relatively weaker, with increases of 0.55% in 2023 and 26.59% in 2024.

However, since 2025, due to a market shift toward growth style, the stock performance of the three companies has been poor. In 2025, China Mobile, China Unicom, and China Telecom’s A-share prices declined by 10.86%, 0.53%, and 9.3%, respectively. Since 2026, their stock prices have fallen by 8.3%, 5.48%, and 8.89%.

What is the impact of this tax rate adjustment on after-tax profits and dividends?

According to the companies’ financial reports, the proportion of VAT-related taxes accounts for about 20% of total taxes.

China Mobile’s financial report shows that its applicable taxes include corporate income tax, VAT, property and land taxes, urban maintenance and construction tax, stamp duty, etc. In 2024, the total taxes paid were 59.82 billion yuan, including income tax of 39.86 billion yuan, and taxes and surcharges such as property and land taxes, urban maintenance and education surcharges, and stamp duty totaling 3.759 billion yuan, with a combined total of 43.619 billion yuan, accounting for 72.9% of total taxes.

China Telecom’s 2024 financial report indicates that its payable taxes amounted to 5.388 billion yuan, including corporate income tax of 2.41 billion yuan, personal income tax of 1.41 billion yuan, VAT of 1.02 billion yuan, property tax of 224 million yuan, education surcharge of 39 million yuan, and other taxes of 294 million yuan. VAT accounted for 18.93% of the payable taxes.

China Unicom’s 2024 financial report shows payable taxes of 2.716 billion yuan, including corporate income tax of 920 million yuan, withholding personal income tax of 758 million yuan, VAT of 644 million yuan, property tax of 148 million yuan, and other taxes of 247 million yuan. VAT accounted for 23.7% of the payable taxes.

Tax experts believe that future attention should be paid to whether relevant telecom service charges will be adjusted, especially for services priced inclusive of tax. With the increase in tax rate and the maintenance of the same inclusive price, the pre-tax income of operators will decrease accordingly, compressing profit margins.

According to UBS calculations, this VAT adjustment will impact service revenue by approximately 1.5% to 2%. Assuming a 25% corporate income tax rate and no other costs or tax deductions, the estimated impact on the 2025 net profits of China Mobile, China Telecom, and China Unicom would be approximately 9%, 17.9%, and 18.2%, respectively.

In early January, Goldman Sachs issued a research report downgrading China Telecom and China Unicom to “Neutral.” The report stated that while the shift of capital expenditure from traditional telecom networks to AI computing infrastructure and new business expansion is viewed positively, short-term growth in service and innovative businesses in mainland China remains under pressure.

Huatai Securities believes that, due to the technological transformation of the three operators leading to an optimized revenue structure and AI-driven cost reductions, the impact of VAT adjustment on total revenue is estimated at about 1.3%-1.4%. Moreover, the ultimate profit impact may be lower than the direct estimate for four reasons: first, the telecom service tax rate adjustment is not the first; in 2014, the telecom industry also faced a “business tax to VAT” policy, with profit impact below 10%, lower than the previous estimate of 18%-30%; second, the operators are accelerating their transformation into tech companies, with increasing revenue share from emerging businesses like IDC and computing services, which may mitigate VAT impact long-term; third, AI-driven network operation optimization can further reduce costs; fourth, operators may offset some of the VAT impact through improved pricing mechanisms, marketing strategies, and package designs.

Huatai Securities states that although the VAT category adjustment will have some short-term impact on the performance of telecom operators, their profitability and cash flow remain stable, and dividend payouts are attractive. Their digital businesses are expected to benefit from the long-term development of domestic AI application industries, and the dual attributes of dividends and technology remain rare investment opportunities.

Tianfeng Securities states that the adjustment of some business VAT from 6% to 9% will not change the long-term positive trend, and they will continue to vigorously develop new businesses such as intelligent computing. They note that the operators are financially stable, with ARPU (average revenue per user) under short-term pressure, but the proportion of ARPU from value-added and rights-based services is gradually increasing. The impact of one-time package downgrades is expected to diminish, and mobile communication revenue may stabilize in the future. Cost areas such as operation and maintenance, depreciation, personnel, and interconnection have room for optimization, ensuring steady profit growth. They also emphasize continued dividend increases, with attractive dividend yields.

This article is sourced from: Financial Magazine

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