China Ups the Ante: New Tax Rules Test Telecom Giants’ Resilience

Three of China’s largest mobile network operators, China Mobile, China Unicom, and China Telecom, have jointly issued statements responding to the latest regulatory changes. According to the Ministry of Finance and the State Taxation Administration, starting January 1, 2026, services like mobile data transmission, SMS, MMS, and broadband internet access will be taxed as ‘basic telecommunications services’ rather than ‘value-added services’. Consequently, the tax rate will increase from 6% to 9%, while the tax rate for voice calls will remain unchanged at 9%.

The projected increase in the tax burden by three percentage points on broadband access and SMS services may be theoretically passed on to consumers; the extent of price hikes will depend on demand elasticity. If consumer prices, including taxes, stay constant, the operators’ revenue, excluding taxes, will decline, placing pressure on profitability.

These new measures come at a pivotal time as China’s telecommunications sector is rapidly advancing with 5G technology. This advancement might mitigate consumer resistance to higher costs due to enhanced services and faster internet speeds. Experts predict that the industry could see strategic shifts as companies might bundle services or offer promotions to retain customers amidst these changes. Observing past responses, these operators have historically absorbed some tax burdens to remain competitive, utilizing comprehensive marketing strategies and technological upgrades.