Source:Brokerage China.The original title is "Heavy Rumors Strike!". In 2023, the company's overall sales volume was 18,000 thousand liters, a year-on-year increase of 28.10%, which is a significant growth. In terms of product structure, the operating income of products worth 10-30 billion yuan were 401/1288/60 million yuan, respectively.
Author: Shi Qian. Will this be the arrival of the "real wolf"? The consumption tax rumors suddenly spread in various investment groups yesterday after the close of trading. There are reports that a trillion-level consumption tax reform will be approaching, and luxury goods and high-end services may be the first to test. As of the close of trading this morning, consumer stocks suddenly rebounded collectively, and retail and duty-free areas led the rise. Among them,
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Yesterday after market close, rumors of consumption tax suddenly spread again in various investment groups. It is reported that the rumored trillion-level consumption tax reform is imminent, and luxury goods and high-end services may be the first to test. As of the morning close today, consumer stocks suddenly rebounded collectively, with retail and duty-free areas leading the rise. Among them,$Kweichow Moutai (600519.SH)$it returned to the 1500 yuan mark, a nearly 1% increase;$CTG DUTY-FREE (01880.HK)$A-shares rose by the daily limit, and Hong Kong stocks rose sharply by more than 16%.
The reason why the consumption tax reform has attracted widespread attention is that firstly, among the four major taxes in China, the consumption tax is the only tax that has not yet been shared between the central and local governments. At present, some terms of the tax no longer suit the current market environment. Second, the expression of this year's budget report on financial and taxation system reform explicitly states that "plans for the reform of the consumption tax and the improvement of the value-added tax system".
In fact, since 2019, rumors of the consumption tax reform have been circulating in the market many times, but it has not been implemented so far. So, will it come true this time? Recently, many brokerage firms have conducted extensive discussions around this expectation: Guotai Junan believes that the direction of the reform of the consumption tax is already "clear", mainly to expand the tax base and move the taxation link backwards and gradually pass it to the local government, and during this process, there will be corresponding adjustments to the tax rate. According to Everbright Securities' calculation, using the base year of 2023, the consumption tax revenue is expected to reach about RMB 1.6 trillion that year, and local governments are expected to increase tax revenue by more than RMB 700 billion, driving local fiscal revenue up about 6 percentage points.
If the consumption tax reform is implemented, how much impact will it have on the market?
Will it land this time?
The enthusiasm for the reform of the consumption tax has risen again in the past two days. So, is it going to be true this time? In fact, in this year's budget report, the expression of financial and taxation system reform explicitly states that "plans for the reform of the consumption tax and the improvement of the value-added tax system". Earlier, the No. 21 document issued by the State Council clearly stated that "the consumption tax levy link will be moved backwards and steadily transferred to local governments".
Galaxy Securities believes that this year's consumption tax is expected to enter the trial reform stage and is also a focus of attention in the fiscal and taxation system reform of the Third Plenary Session of the Central Committee.
Guotai Junan believes that the direction of the reform of the consumption tax is already "clear", mainly to expand the tax base and move the taxation link backwards, and during this process there will be corresponding adjustments to the tax rate.
Since China implemented the Provisional Regulations on Consumption Tax of the People's Republic of China in 1994, the consumption tax has undergone multiple rounds of reforms. At present, it has three characteristics: firstly, the core purpose is to protect resources and the environment, guide healthy consumption, and regulate income distribution; secondly, tobacco and petroleum products account for more than 80% of consumption tax revenue, and the role of consumption tax in restricting high-polluting and high-energy-consuming consumption is greater than that in regulating income distribution; thirdly, it is levied more at the production stage and less in the wholesale and retail stages.
The "specific consumption tax" in OECD countries, like China's consumption tax, generally levies taxes on alcohol, tobacco, and mineral oil to increase revenue and guide consumption behavior. In addition, luxury goods, specific services, and environmental pollutants are also taxed. In recent years, the proportion of consumption tax in OECD countries' tax revenue and GDP has shown a downward trend.
How much impact will it have on local finance?
In the past, the consumption tax in China was a central tax whose income was fully credited to the central government. The tax was mainly paid by the production side in the place where the production side is located in the production stage. The so-called downward transfer of consumption tax means that some proportion or part of the consumption tax is assigned to the local government from the past when it was fully credited to the central government, and the so-called backward movement means that from the past, the production side was shifted to the wholesaler or retailer to pay taxes to the tax authority in the place where it is located. After the downward transfer and backward movement of the consumption tax, some of the income will be transferred to the local governments where the consumption takes place.
Currently, China's consumption tax mainly comes from tobacco (43.4%), petroleum fuels (33%), automobiles (7%), and alcohol (4.6%). According to the calculation of Galaxy Securities, assuming that all the taxation links of all tax items will be moved back and down to the local level in the reform of the consumption tax with a 50% proportion, the tax revenue of provinces from east, central, west, and northeast regions will increase by RMB 330.8 billion, RMB 156 billion, RMB 159.3 billion, and RMB 50 billion, respectively. The reason why the eastern region obtained a larger transfer of tax revenue is that its consumption accounts for a larger proportion, the consumption expenditure of tobacco and alcohol in the ten eastern provinces accounts for 49.4% of the national proportion, the consumption of petroleum products accounts for 42.8%, and the consumption of automobiles accounts for 51.1%.
From the perspective of the marginal growth rate of fiscal revenue (incremental consumption tax/local fiscal revenue), after the implementation of the backward movement and downward transfer reform of the consumption tax, the fiscal growth rates in the eastern, central, western, and northeastern regions are 5.2%, 8%, 3%, and 6%, respectively. The higher growth rates in the Northeast and central region are mainly due to the lower base of fiscal revenue, which makes the marginal utility of the consumption tax reform for them higher.
According to the calculation of Everbright Securities, assuming that the consumption tax is divided equally between the central and local governments for the tax on tobacco, alcohol, and other categories, and that automobile consumption tax is completely assigned to the local government due to real-name registration and the need for corresponding infrastructure, with petroleum fuel being mainly produced and sold by large central enterprises, and the proportion of distribution in the production stage can be slightly higher, assuming that 20% is assigned to the local government; based on the above allocation ratio, using the base year of 2023, it is expected that the consumption tax revenue will reach about RMB 1.6 trillion that year, and local governments are expected to increase tax revenue by more than RMB 700 billion, driving local fiscal revenue up about 6 percentage points.
GTJA believes that objectively, the transfer of the consumption tax collection point may slightly increase the tax burden, but it is expected that the scale will not exceed 200 billion yuan. At the same time as the tax burden increases, the positive significance of this reform is to establish a mechanism for local governments to encourage consumption by reducing some consumption restrictions (such as license plate restriction, car purchase restriction, etc.).
How much impact will it have on baijiu?
The market is most concerned about how much impact this tax will have on baijiu, especially Maotai.
From the current situation, under the current consumption tax system, high-end liquor has an overall tax rate lower than low-end liquor. Because the consumption tax of baijiu is the ad valorem tax + specific tax, the specific tax (0.5 yuan/kg or 0.5 yuan/500ml) has significantly benefited high-end liquor. Therefore, the consumption tax rate of high-end liquor companies is significantly lower. In 2023, the average consumption tax rates of high-end liquor, second-tier high-end liquor, regional leading liquor, and third/fourth-tier liquor are 11.9%, 13.8%, 12.7%, and 13.6%, respectively.
Zheshang Securities believes that the implementation of specific taxes will have a greater impact on output, but small impact on profit. From 1994 to 2017, the growth rates of baijiu output were 9%, -9%, 18%, 24%, and 7% respectively. Only in 2001 did the specific tax policy have a significant impact on baijiu output, but most enterprises improved their profitability by upgrading product structure. In terms of profit, from 1994 to 2017, the growth rates of net income for Baijiu sector mothers were 78%, -4%, 72%, 37%, and 45%, and the impact of tax reform on the profit side of baijiu companies was small. The main reason is that liquor companies can smooth the impact of tax and fee reforms.
In addition, from 2013 to 2023, the changes in consumption tax rates of listed liquor companies show two clear trends: one is the upward trend of consumption tax rates, most listed liquor companies have higher consumption tax rates in 2023 than in 2013 due to the improvement in the minimum taxable price policy. Second, the consumption tax rates tend to be consistent: the variance of consumption tax rates between all listed liquor companies in 2013 and 2023 is 0.12% and 0.02%, respectively, and the difference in consumption tax rates between liquor companies has narrowed.
Zheshang Securities believes that the liquor industry has undergone many reforms in the consumption tax system in history, but it has not had a significant negative impact on the industry. The overall impact of this consumption tax reform is expected to be limited. If the consumption tax moves backward or downward, it is expected to be bullish for the development of head liquor companies, while small and medium-sized liquor companies may face clearance.
However, the current environment is different from previous reforms. Since last year, the market's expectations for consumption have gradually declined. From the fiscal data, the growth rate of personal income tax has also gradually declined. Under the background of the simultaneous decline in income and consumption expectations, we need to pay attention to how much impact the consumption tax reform will have.
Today, after a long period of decline, $China Tourism Group Duty Free Corporation (601888.SH)$ has completely exploded. As of the morning close, the A-shares of China Tourism Group Duty-Free Corporation have reached the daily limit, and the Hong Kong shares have surged by more than 16%. Analysts believe that since the consumption tax exempted by China's duty-free industry includes the entire chain of import, wholesale, and retail, the "consumption tax moving backward" will not have any impact on the prices of the company's tax-exempt products if upstream suppliers do not adjust supply prices.
Editor/Emily