VAT rate jumps by 3 points! The three major operators face short-term pressure—can new quality productive forces break the dilemma in the long term?

VAT rate jumps by 3 points! The three major operators face short-term pressure—can new quality productive forces break the dilemma in the long term?

I. What happened?

The "Announcement on Specific Matters Regarding the Scope of VAT Collection" (Ministry of Finance and State Administration of Taxation Announcement No.9 of 2026), issued on January 30, 2026, is a major fiscal and tax policy adjustment in the telecommunications industry in recent years. The core change is an increase of the VAT rate for major businesses such as mobile data, SMS/MMS, and broadband access from 6% to 9%.

On February 1, China Mobile, China Telecom, and China Unicom, the three major operators, collectively issued announcements explicitly acknowledging that this adjustment “will affect the company’s revenue and profit.”

As a result, the share prices of the three major operators plunged sharply today, hitting new lows since the beginning of this round of adjustment. Since November 27, the A-shares of all three operators have fallen by more than 10%, while the CSI 300 Index rose slightly by 2% during the same period.

II. Why is this important? Under a neutral scenario, the profitability impact ranges from 5% to 32% for the three major operators

1. Analysis of impact mechanism of new fiscal and tax policy:
1) Revenue side (negative impact):

Operators’ C-end user packages are usually “tax-inclusive.” With the VAT rate rising from 6% to 9%, it means that with the retail price unchanged, operators must extract more tax to be remitted to the fiscal authorities, directly reducing the “pre-tax main business income” recorded in financial statements. Theoretically, the revenue decline for related businesses is about 2.75%.

For example, if a certain data package is sold for 100 yuan including tax, under the old policy (6% rate), confirmed revenue = 100/(1+6%)=94.34 yuan; under the new policy (9% rate), confirmed revenue = 100/(1+9%)=91.74 yuan, resulting in a decrease of 2.6 yuan per transaction, a decline of 2.75%.

2) Profit side (negative impact):

Given the difficulty of passing on downward pressure through ARPU increases in a fiercely competitive market, and because the revenue base falls while hard costs like network maintenance and depreciation/amortization are difficult to cut in the short term, and because it takes time for input tax deduction chains to work through, it’s expected that this policy will have a direct negative effect on current net profits.

2. Different degrees of impact on the profitability of the three major operators

1) Using China Mobile’s 2024 operating data as an example, the potential impact of the new policy is calculated.

Main business income in 2024 was 889.5 billion yuan, of which businesses affected by the tax rate adjustment (52.0% of main business income) included wireless internet business (333.7 billion yuan, 37.5%), fixed broadband business (102.5 billion yuan, 11.5%), and SMS/MMS business (26.4 billion yuan, 3.0%). With VAT rising from 6% to 9%, the impact mechanism is:

  • Output VAT increases: affected income × 3%.
  • Actual tax burden: depends on input tax deduction capability (labor, depreciation, etc., are not deductible).
  • Scenario assumption: In a neutral scenario (45% input deduction) and not considering pass-through, this fiscal and tax policy adjustment will affect China Mobile’s 2024 net profit by 6.4 billion yuan, a decline of 4.6%. In an extreme case (no deduction possible), the adjustment will negatively impact net profit by 11.7 billion yuan, a decline of 8.4%.

2) The potential profit impact for China Unicom and China Telecom may be greater:

According to their 2024 financial reports, the affected income for China Unicom and China Telecom is 209 billion and 247.5 billion yuan, respectively, accounting for 60.4% and 51.4% of service income proportionately.

Under a neutral assumption, China Unicom is hit hardest (net profit may fall by 2.9 billion yuan, down 32% year-on-year), as it has the lowest profit margin (5.3%) and the highest proportion of affected income (60.4%), while China Telecom would see a mid-level impact between China Mobile and China Unicom (net profit may fall by 3.4 billion yuan, down 10% year-on-year).

III. What’s next?

1. Short-term pain unavoidable:

Being the first year of policy implementation, 2026 will see the three major operators facing high base pressure for revenue and profit growth (6% tax rate applied in 2025, 9% in 2026), and the market must digest this one-off financial shock.

2. Medium- and long-term logic unchanged—— High dividend yields + growth options for new quality productive forces

The three major telecom operators retain both the high dividend attributes of utility companies and the growth options provided by new quality productive forces.

1) High dividend yield:

All three operators are typical “utility-type dividend assets.” Considering profitability, business model, operational barriers, and balance sheet quality, their reasonable dividend yield level should be between Yangtze Power and the four major state-owned banks.

After the fiscal and tax policy announcement, we believe the asset pricing of the three operators hinges on two aspects: First, investors need to pay attention to the actual impact of the new policy on profitability (which remains uncertain, pending management’s market guidance upon the release of 2025 annual reports in March); second, both China Mobile and China Telecom have three-year cash dividend plans (2024-2026), with cash dividend ratios projected to exceed 75% in 2026, so any potential reduction in earnings that year may be partially offset by increased cash dividend payout ratios.

2) Growth options for new quality productive forces:

① Cloud business: The cloud businesses of the operators have evolved from simple server rental into enabling platforms for AI-native services. Thanks to their dual attributes as “national team” and market-driven entities, operator clouds are irreplaceable for data security and autonomy, making them the “new infrastructure” of the digital economy era.

② Computing power network: All three operators enjoy unique, comprehensive advantages in the computing power arena. Relying on their full-coverage, highly reliable cloud-network integrated infrastructure, they have built nationwide computing power networks and extensive deployments in intelligent computing and IDC. China Mobile features large-scale computing and cloud-intelligence fusion, China Telecom focuses on smart computing layouts and self-developed technologies as core competitiveness, and China Unicom leverages its intelligent computing network and inclusive services. Each, with stable cash flows, supports ongoing upgrades, offering full-chain computing services and deeply empowering digital transformation across thousands of industries, thus becoming the core pillar of computing power supply for the development of new quality productivity in China.

③ Data resources: Operators possess massive, high-quality data resources, and cloud business is fundamental infrastructure for data storage, processing, and trading. Through cloud platforms, operators offer data cleansing, desensitization, and analysis services, converting data resources into tradable assets; a small portion of data assets have already been put on balance sheets and generated value re-evaluation.

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