Government Stance on Energy Performance Contracting Is Clear; Policy Strength Exceeds Market Expectations

　　The Ministry of Finance and the State Administration of Taxation recently jointly issued the "Notice on Issues Concerning VAT, Business Tax and Corporate Income Tax Policies for Promoting the Development of the Energy-Saving Service Industry," which temporarily exempts qualified energy-saving service companies from business tax and value-added tax, while granting income tax preferences of "three years exempt and three years halved."
　　
　　The Notice stipulates that from January 1 of this year, for qualified energy-saving service companies implementing energy performance contracting projects, the business tax taxable income obtained will be temporarily exempt from business tax. Where energy-saving service companies implement qualified energy performance contracting projects and transfer VAT-taxable goods in the project to energy-using enterprises, VAT will be temporarily exempt.
　　
　　Regarding corporate income tax, the Notice clearly requires that for qualified energy-saving service companies implementing energy performance contracting projects that comply with the relevant provisions of the corporate income tax law, from the tax year in which the project obtains its first operating income, corporate income tax will be exempted from the first year to the third year, and from the fourth to sixth year, corporate income tax will be levied at half the statutory rate of 25%.
　　
　　From a policy perspective, the state's attitude toward adopting energy performance contracting for energy-saving services is very clear, and the policy strength exceeds market expectations. Moreover, the scope of tax subsidies has been expanded and subsidy conditions have become more refined. However, energy-saving service companies still face the problem of financing difficulties. Arranging reasonable policies and improving the financing ties between users, energy-saving service companies and banks has become the policy focus of the next stage of the energy-saving service industry.
　　
　　Tu Jun, a strategy analyst at Shanghai Securities, said that the policy promotion of energy performance contracting is clearly accelerating. Energy performance contracting is a business model in which energy-saving service companies recover costs through energy-saving benefits. In the future, it will become an effective means to promote industrial energy conservation and building energy conservation, with huge growth potential. The focus is on energy-saving service companies and energy-saving equipment providers, among which three major areas—waste heat utilization, frequency converter manufacturing, and central air conditioning and lighting system renovation—are worthy of close attention.
　　
　　The preferential tax policies will definitely bring substantial impact on energy-saving service companies. On the one hand, since the energy-saving service revenue of energy-saving service companies will surge with policy support, companies with a complete energy-saving service industry chain will benefit more; on the other hand, benefiting from tax incentives and other subsidy policies, profitability has greatly improved. Therefore, companies that take the lead in implementing energy performance contracting for energy-saving services in industrial, construction and other fields will have a first-mover advantage.

(Editor: yuy)