Tax breaks to lend IT sector helping hand

China's latest tax incentive policies for the integrated circuit industry will greatly boost the competitiveness of the nation's semiconductor sector and will fuel more investment and resources for technological breakthroughs, industry experts said on Friday.

The new policy, launched by the Ministry of Finance and three other ministries, stated that qualifying IC companies or projects that have been in operation for more than 15 years and that make 28-nanometer or smaller advanced chips, will be exempt from corporate income taxes for up to 10 years.

Those producing 65-nanometer to 28-nanometer chips will get five years of tax exemption and a 50 percent discount on the corporate tax rate for the subsequent five years. For the above-mentioned chip manufacturers, preferential treatment begins from the first profitable year.

"The fresh policies will greatly reduce the tax burden on semiconductor enterprises and encourage them to invest more into research and development as well as upgrading integrated circuits," said Chen Ji, head of the industry economy research institute at Capital University of Economics and Business.

Xu Tao, chief electronics analyst at CITIC Securities, said that for Semiconductor Manufacturing North China (Beijing) Corp－a subsidiary of leading chipmaker Semiconductor Manufacturing International Corp－the new incentives will help the company save approximately $10 million each year in taxes.

"These policies will drive companies to strive for more advanced production lines and boost the competitiveness of the nation's semiconductor industry on the global stage," Xu said.

Under the new policy, for companies engaged in chip design, packaging, testing and relevant equipment, the first two years of profit will also be tax exempt. Similar policies earlier only targeted companies involved in chip design.

"The country has witnessed the flow of money into the chip design segment－which has a lower technological threshold and quick investment returns－over the past decade.

"But it is more important to put efforts into chip materials, equipment and manufacturing, where China lags behind advanced countries," said Ding Wenwu, president of China Integrated Circuit Industry Investment Fund Co Ltd.

Shares of several semiconductor and related industry-chain companies soared on Friday with Jiangsu Nata Opto-electronic Material Co Ltd rising 8.22 percent.

Last year, the total income tax of A-share semiconductor companies hit 2.57 billion yuan ($393 million). These companies reported total profit of 20.96 billion yuan, said a report from Everbright Securities.

Xiang Ligang, director-general of the Information Consumption Alliance, a telecom industry association, said that the latest policies also showed strong determination from the government to develop the semiconductor sector.

"It is a more rational and longer-term vision for the sustainable development of the semiconductor sector.

"The importance of chips has been further underlined by the US government's moves to contain the rise of Chinese tech companies,"Xiang said.

Despite the COVID-19 pandemic, the country's IC design industry has maintained fast growth this year. The number of IC design enterprises in China increased to 2,218, among which 289 are set to see their sales revenues surpass 100 million yuan this year.

The total sales volume of the nation's IC design industry is expected to grow 23.8 percent year-on-year to reach 381.94 billion yuan by year-end, which will account for nearly 13 percent of total sales worldwide.

Source from State taxation administration of the P.R.C.
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