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<Research>Citi: CN New Gold Tax Policy May Lift Procurement Costs by 7%, Affecting LAOPU GOLD/ CHOW TAI FOOK/ LUK FOOK HOLD FY26 NP by 15%/ 26%/ 6% If Retail Prices Unchanged
Recommend 9 Positive 17 Negative 14 |
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China's Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly issued an announcement regarding the tax policy on gold, declaring the implementation of a new gold tax policy effective immediately. It specified that "standard gold" traded on the Shanghai Gold Exchange and the Shanghai Futures Exchange is exempt from value-added tax (VAT) for on-exchange transactions. However, if physical delivery occurs, different taxes will be levied based on the purpose of use. The new policy will be in effect from November 1, 2025, until December 31, 2027. For non-investment purposes, the exchanges will exempt VAT and issue a general invoice to the purchasing member unit based on the actual transaction price. If the purchasing member unit is a general VAT taxpayer, the input tax amount is calculated based on the amount stated on the general invoice and a deduction rate of 6%. Gold jewelry stocks were squeezed this morning (3rd), with LAOPU GOLD (06181.HK) sinking by 7.4% and CHOW TAI FOOK (01929.HK) diving by 7.7%. China's sudden adjustment to its gold tax policy seems to reduce the VAT deduction rate for jewelry companies purchasing gold from 13% to 6%, sparking widespread uncertainty among industry participants, Citi wrote in its report on the Chinese consumer industry. The industry is currently studying the policy text, with various interpretations emerging. In the worst-case scenario, gold procurement costs may rise by 7%. If retail prices remain unchanged, the expected impact on net profit for LAOPU GOLD/ CHOW TAI FOOK/ LUK FOOK HOLD (00590.HK) in FY26 would be 15%/ 26%/. The entire industry would likely raise prices to pass on cost pressures, which may benefit leading companies in the competitive landscape. However, it is still unclear whether the policy aims to raise transaction costs only for gold bars and coins or also intends to curb demand for gold jewelry. As a result, Citi expects further clarification on implementation details in the coming days. AAStocks Financial News |
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