China's three major telecommunications operators—China Mobile (600941.SH, 0941.HK), China Unicom (600050.SH, 0762.HK), and China Telecom (601728.SH, 0728.HK)—collectively announced on February 1 that the applicable scope of the value-added tax (VAT) category for telecommunications services has been adjusted, with the tax rate increasing from 6% to 9%, which will impact their company revenues and profits. The announcement indicated that recently, the Ministry of Finance and the State Taxation Administration issued the "Announcement on Specific Matters Concerning the Scope of VAT Levying" (Announcement No. 9 of 2026), stipulating that starting January 1, 2026, within China, business activities utilizing fixed networks, mobile networks, satellites, and the internet to provide mobile data services, SMS and MMS services, and internet broadband access services will see their applicable tax category shifted from value-added telecommunications services to basic telecommunications services, with the corresponding VAT rate adjusted from 6% to 9%. All three operators mentioned in their announcements that this adjustment in the applicable scope of the VAT category will affect their company revenues and profits.
As a result, on February 2, the share prices of the three major operators collectively declined in both their A-share and H-share markets. By the market close, China Mobile's A-shares fell 3.86% to 92.66 yuan per share, while its H-shares dropped 2.26% to 78 Hong Kong dollars per share; China Unicom's A-shares declined 5.48% to 4.83 yuan per share, and its H-shares fell 6.29% to 7.45 Hong Kong dollars per share; China Telecom's A-shares decreased 4.33% to 5.74 yuan per share, and its H-shares dropped 5.02% to 5.11 Hong Kong dollars per share. The total market capitalizations of the three companies were 2.01 trillion yuan, 151.01 billion yuan, and 525.25 billion yuan, respectively, decreasing by 80.5 billion yuan, 23.8 billion yuan, and 8.8 billion yuan from the previous day, resulting in a combined loss of over one trillion yuan. "The core appeal of telecom operators as dividend stocks for investors lies not in short-term earnings growth but in stable and high dividend payouts, which are directly sourced from after-tax net profits—this also forms the basis for their valuation. This tax rate increase, if it compresses the operators' after-tax net profits, will subsequently reduce distributable profits, naturally leading to lower dividends for investors. This directly undermines the core valuation anchor of telecom operators as a dividend sector, which is a significant reason for the stock price decline on February 2. However, this should be considered a one-time negative impact," a private equity investor commented.
The essence of this adjustment is a "reclassification" of tax categories rather than the imposition of new tax burdens. According to public information, previously, voice call services offered by the three major operators were classified under "basic telecommunications services," subject to a 9% tax rate; whereas services such as SMS and MMS, mobile data, and internet broadband access were categorized as "value-added telecommunications services" during the pilot reform replacing business tax with VAT, applicable to a 6% rate. With technological advancements, services like mobile internet access, broadband access, SMS, and MMS have become fundamental in the current digital era. Therefore, this tax rate adjustment aligns the tax classification with the actual situation, further clarifying the public utility nature of basic communication services. "The collective announcement by the three major operators regarding the VAT rate adjustment reflects a redefinition of the current attributes of telecommunications services by tax policy. This will drive operators to focus more on core operations such as network construction and service assurance, reduce homogeneous marketing competition, enhance overall industry operational efficiency, and support the high-quality development of digital economy infrastructure," analyzed an industry insider.
Notably, some consumers are concerned about whether this tax rate adjustment will lead the three major operators to raise prices for services like mobile internet and broadband access. Analysis suggests that while voice call services, already taxed at 9%, remain unaffected, services such as broadband and SMS, facing a 3-percentage-point tax increase, could potentially see price hikes. Although theoretically, the three operators could pass the tax burden on to consumers, whether they actually raise prices depends on consumer demand elasticity and remains to be seen. In response, all three operators stated in their announcements that they will continue to enhance operational efficiency, focus on high-quality development, and accelerate their transformation into emerging fields like artificial intelligence and cloud services to mitigate the impact of this tax rate increase. China Mobile stated it will adhere to its primary responsibilities and core businesses, striving to strengthen, optimize, and expand communication services, computing power services, and intelligent services. It emphasized reinforcing network foundations, promoting full-stack innovation, deepening lean management and efficiency improvements, and accelerating the construction of a world-class technology service enterprise. China Unicom expressed its commitment to upholding integrity while fostering innovation, focusing on its core responsibilities, and concentrating on key areas such as connectivity, computing power, services, and security. It aims to build differentiated advantages, further improve operational efficiency, and steadily advance high-quality development. China Telecom indicated it will fully implement its strategy of cloud transformation, digitalization, intelligence, and benefit, accelerate the building of a technology-oriented enterprise, comprehensively promote its AI+ initiative, and continuously develop integrated intelligent cloud services combining "computing power + platform + data + model + application." It plans to speed up the cultivation of new growth drivers, promote quality improvement and cost reduction, and sustain high-quality enterprise development.
From a fundamental perspective, in recent years, as growth in traditional business revenues like personal mobile communications has gradually slowed, businesses such as digital transformation for government and enterprise clients have become new growth drivers, with all three operators maintaining a trend of steady performance growth. Financial reports show that for the first three quarters of 2025, China Mobile achieved total operating revenue of 394.3 billion yuan, a year-on-year increase of 0.41%, and a net profit attributable to shareholders of 115.4 billion yuan, up 4.03% year-on-year, making it the company with the highest revenue and profit among the three operators. During the same period, China Telecom maintained steady growth in recent years, leveraging its Tianyi Cloud computing business, achieving operating revenue of 394.3 billion yuan, a 0.59% increase year-on-year; and a net profit attributable to shareholders of 30.77 billion yuan, up 5.03% year-on-year. China Unicom achieved operating revenue of 293 billion yuan, an increase of 0.99% year-on-year; and a net profit attributable to shareholders of 8.772 billion yuan, growing 5.02% year-on-year. Against the backdrop of steady performance growth, the three major operators have consistently increased their dividend payout ratios over the past few years, becoming representative dividend stocks in the capital market known for high payouts and dividend yields. Financial reports indicate that China Mobile's dividend payout ratio rose from 38.6% in 2021 to 72.6% in 2024, with total dividends distributed in 2024 reaching 100.5 billion yuan; China Telecom's dividend payout ratio increased from 59.94% in 2021 to 72.01% in 2024, distributing total dividends of 23.77 billion yuan in 2024; China Unicom's dividend payout ratio rose from 42.49% in 2021 to 54.73% in 2024, with total dividends of 4.942 billion yuan distributed in 2024.
From 2023 to 2024, benefiting from a dividend-focused style in the capital market, the three operators' stock prices rose consecutively against the trend despite a declining broader market index. Specifically, China Mobile's stock price increased by 66.56% in 2023 and 25.79% in 2024, once becoming the company with the highest market capitalization in the A-share market; China Telecom's stock price rose 41.83% in 2023 and 42.37% in 2024; China Unicom's stock performance was relatively weaker, with increases of 0.55% in 2023 and 26.59% in 2024. However, since the beginning of 2025, due to a market style shift towards growth-oriented stocks, the stock performance of all three operators has been poor. China Mobile, China Unicom, and China Telecom's A-share prices have fallen by 10.86%, 0.53%, and 9.3% respectively in 2025, and since the start of 2026, their stock prices have declined by 8.3%, 5.48%, and 8.89% respectively.
What impact will this tax rate adjustment have on the after-tax profits and dividends of the three major operators? From the operators' financial reports, VAT constitutes approximately 20% of their total tax expenses. China Mobile's financial report shows that its applicable taxes include corporate income tax, value-added tax, property and land tax, urban maintenance and construction tax, stamp duty, etc. According to its 2024 annual report, the total amount of various taxes paid was 59.828 billion yuan. Of this, income tax expense was 39.86 billion yuan, and taxes and surcharges, including property and land tax, urban maintenance and construction tax, education surcharge, etc., amounted to 3.759 billion yuan. The combined tax amount was 43.619 billion yuan, accounting for 72.9% of the total tax expense. China Telecom's 2024 financial report indicates that its taxes payable were 5.388 billion yuan, comprising corporate income tax of 2.41 billion yuan, personal income tax of 1.41 billion yuan, value-added tax of 1.02 billion yuan, property tax of 224 million yuan, education surcharge of 39 million yuan, and others of 294 million yuan. VAT accounted for 18.93% of the total taxes payable. China Unicom's 2024 financial report shows its taxes payable were 2.716 billion yuan, including corporate income tax payable of 920 million yuan, personal income tax withheld and payable of 758 million yuan, value-added tax payable of 644 million yuan, property tax payable of 148 million yuan, and others of 247 million yuan. VAT payable accounted for 23.7% of the total taxes payable.
Tax experts suggest that subsequent attention should be paid to whether related telecommunications service charges will be adjusted, particularly for services currently priced as tax-inclusive. If the tax-inclusive price remains unchanged while the tax rate increases, the operators' tax-exclusive revenue will correspondingly decrease, compressing profit margins. According to UBS estimates, this VAT adjustment will impact the service revenue of the operators by approximately 1.5% to 2%. Assuming a 25% corporate income tax rate and without considering other costs or tax credit measures, the impact on the net profits of China Mobile, China Telecom, and China Unicom, based on 2025 profit forecasts, is estimated to be around 9%, 17.9%, and 18.2% respectively. In early January, Goldman Sachs released a research report downgrading China Telecom and China Unicom to a "Neutral" rating. Goldman Sachs noted in the report that while it holds a positive view on Chinese operators shifting capital expenditure from traditional telecom networks to AI computing infrastructure and new business expansion, the growth of domestic telecom service businesses and innovation businesses faces short-term pressure. Huatai Securities, however, believes that due to revenue structure optimization brought by the technological transformation of the three major operators and cost reductions from AI operations, the impact of the VAT adjustment on the operators' total revenue is approximately 1.3%-1.4%. Furthermore, the ultimate impact on profits might be lower than direct calculations suggest for four main reasons: first, this is not the first adjustment of tax rates for the telecom service industry; the sector also faced tax policy changes during the 2014 business tax to VAT reform, where the final profit impact was below 10%, lower than the initial estimates of 18%-30%. Second, the three operators are accelerating their transformation into technology enterprises; as the revenue share of emerging businesses like IDC and computing power services increases, it could alleviate the impact of VAT in the long run. Third, AI-driven optimization of network operation and maintenance processes leaves room for further cost reductions. Fourth, operators might partially offset the VAT impact by refining pricing mechanisms, marketing models, and package designs.
Huatai Securities stated that although the VAT category adjustment will affect the short-term performance of telecom operators to some extent, their stable profitability and cash flow, attractive dividends, and the unchanged long-term logic that their digital businesses stand to benefit from the development of China's AI application industry mean they remain a scarce investment variety combining both dividend and technology attributes. Tianfeng Securities commented that the adjustment of the VAT rate from 6% to 9% for certain services of the three major telecom operators represents a short-term shock that does not alter the long-term positive trend, emphasizing their commitment to vigorously developing new businesses like intelligent computing. It noted that the three operators maintain robust operations; although ARPU is under short-term pressure, the proportion of ARPU from value-added and rights businesses is gradually increasing, and the impact of one-time package downgrades is expected to diminish, potentially stabilizing mobile communication service revenue in the future. On the cost side, there is optimization potential in operation and maintenance, depreciation and amortization, personnel, and inter-network settlement costs, which can ensure steady growth in net profit; coupled with continuously increasing dividend payouts, the dividend yield remains attractive.
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