China's decision to make sweeping changes to the current consumption tax regime, which was announced on Tuesday and will take effect starting April 1, is turning some public companies into investors' darlings, while making life harder for others.
The consumption tax revision, the largest overhaul since its inception in 1994, shot up shares of companies whose products will likely be affected by the revision, while others dipped on the stock market yesterday in a trend analysts say may herald investors' sentiments in days to come.
According to the tax adjustment, more refined oil products, disposable wooden chopsticks and wooden floor panels will be charged consumption tax, as well as other luxury items such as high-priced watches, yachts and golf balls. Meanwhile, the consumption tariff on some goods such as hard alcohol, motorcycles, small-engine cars will be cut, while tax on skincare products and shampoo will be totally done away with.
The biggest gainer yesterday was Shanghai Jahwa United Co Ltd, a leading domestic home chemical products maker, which saw shares rise by 6.27 per cent.
According to the proposed tax revision, tariffs on hard alcohol will be trimmed from the current 25 per cent to 20 per cent, a reduction that some say is significant enough to help liquor makers' performance.
"It's a boost to the hard alcohol makers," said Qiao Baijun, a food and beverage analyst with CITIC Securities. "It will contribute to their business performance."
All hard alcohol producers (except those whose shares were suspended from trading) saw their prices of shares climb yesterday.
"At the same time, companies in the wooden products and oil-related luxurious goods sector will suffer (under the tax revision)," said Hu Yanni, an analyst from the China Securities Company.
A 5 per cent consumption tax will be imposed on disposable wooden chopsticks and wooden floor panels in a bid to protect the country's forests by discouraging their use.
"The addition of the tax will have a noticeable impact on those wood products companies," said Hu.
(China Daily 03/23/2006 page10)