As the Chinese corporate earnings season went on through late August, analysts at CICC, the mainland investment bank, noticed a startling new trend – net profit numbers were coming in much lower than the rest of their numbers would suggest.
After quizzing managements of a number of companies, a common theme emerged – local governments were suddenly raising their tax demands.
“Managements explained that it is because some local subsidiary had been requested by the local government to pay full enterprise tax rate this year, rather than the preferential high- and new-tech-enterprise tax rate they had been granted,” the analysts noted in an email to clients.
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