CMB Securities: Outlook on Consumption Tax Reform — How to Understand the Increase in the Proportion of State-Owned Capital Revenue Collection?

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Source: China Merchants Securities

This week, on the domestic policy front, we recommend focusing on matters related to the reform of the fiscal and tax system. First is the value-added tax? We have sorted out the potential directions for possible reforms to the consumption tax. From an investment opportunity perspective, we suggest focusing on areas such as tax-free benefits and “dual carbon.” Second is the implementation of an increase in the proportion for collecting state-owned capital returns. We believe that, against the backdrop of increasing the collection proportion across various groups’ returns, they may have demands to raise the dividend payout ratios of their listed companies or non-listed entities. We suggest paying attention to related market developments for central SOEs with high dividend yields going forward.

Domestic Policy Special One: Outlook for the Consumption Tax Reform. Recently, discussions about the consumption tax reform in the market have increased.

Based on our research, compared with the budget reports in recent years and the various arrangements for the fiscal and tax system reform, this year’s demand for consumption tax reform is indeed relatively high. It may mainly take entry points in three aspects: expanding the coverage, adjusting tax rates, and moving the collection stage. Combined with the views of various experts, we have compiled the potential consumer categories that could be affected under these three reform paths. In terms of the impact on the subsequent market, we believe that, under the background of the Central Economic Work Conference emphasizing consistency in macro policy orientation and expectation management, the promotion of consumption tax reform will still consider—at the maximum extent—the impact on market expectations, avoiding synthetic fallacies.

Therefore, in terms of the implementation pace, it may be advanced in multiple phases: first, launch categories whose impact is relatively controllable and have larger negative externalities. For example, on expanding the scope of collection, priority could be given to expanding to luxury leather goods, clothing, and other categories, which would indirectly benefit tax-free offerings. For example, when adjusting tax rates, priority could be given to expanding the tax rates on parts of consumption products that are harmful to the environment, which would indirectly benefit new energy power generation, environmental protection, and other “dual carbon” related concepts. As for measures such as a sugar tax, their rollout may also be tied to expectation management and advanced at an appropriate time.

Domestic Policy Special Two: Increase in the Proportion of State-Owned Capital Returns to Be Collected. Recently, the Ministry of Finance disclosed the 2026 central government budget, including “Explanation of the 2026 Central Government State-Owned Capital Operation Budget,” which for the first time disclosed the collection proportion of after-tax profits of centrally-owned wholly state-owned non-financial enterprises. Related data shows major changes compared with what was previously made public, and the proportion of profits remitted to the public finance has clearly increased. This is the first adjustment since 2014. In terms of specific changes, the remittance proportions for different tiers have increased by about 10%-15%. We believe that, going forward, investors should focus on market opportunities related to central SOEs with high dividend yields. Against the backdrop of increasing the proportion for collecting group returns, they may have demands to raise the dividend payout ratios of their listed companies or non-listed entities. We compiled the dividend situations of central SOE groups under the State-owned Assets Supervision and Administration Commission and their corresponding listed central SOEs, and compared them with the proportions after the increase in the collection proportion. We found that about 45 listed central SOEs in 2024 had dividend payout ratios that were, to a certain extent, lower than the proportions they should remit under the increased collection proportion of their groups. By industry, these central SOEs mainly belong to groups in power, transportation, defense and military industries.

Risk Warning: Incomplete understanding of policies, economic data and policies falling short of expectations, and tighter overseas policies.

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Editor: Guo Xutong