(Yicai) Sept. 3 -- Shares of Dayou Energy fell today after the Chinese coal miner said two subsidiaries must pay about CNY336 million (USD50 million) in back taxes and late fees after losing their high-tech enterprise status, as China steps up scrutiny that has led to thousands of such qualifications being revoked since last year.

Dayou's stock price [SHA: 600403] closed 2 percent lower at CNY7.03 (USD1.10) today after dropping as much as 6.3 percent intraday.

The two subsidiaries, Kuqa Yushuling Coal Mine and Kuqa Kexing Coal Industry, both located in the Xinjiang Uygur Autonomous Region, need to pay CNY165.3 million and CNY170.2 million, respectively, in corporate income tax and late fees for 2022 to 2024, Henan province-based Dayou disclosed yesterday. Certain business activities at the units failed to meet the requirements for high-tech enterprise income tax incentives, it added.

The tax payments will be booked in Dayou's profit and loss for this year and are expected to reduce annual net profit by about CNY268.4 million, according to the announcement, adding to pressure on the company that has posted losses for three consecutive years, totaling CNY3.6 billion (USD535.8 million).

The two subsidiaries had paid a combined CNY231.3 million in back corporate income tax as of the announcement date, Dayou said. The relevant matters are still being discussed and processed with the tax authorities, and a final determination has yet to be made, the company added.

Regulatory Tightening

Authorities have increased scrutiny amid concerns that some companies improperly obtained high-tech status to benefit from tax breaks.

Since last year, at least 6,649 companies nationwide have had their high-tech enterprise status revoked, according to Yicai's calculations based on official disclosures from various provinces.

China's statutory corporate income tax rate is 25 percent, while companies recognized as high-tech enterprises are eligible for a preferential rate of 15 percent. To qualify, companies must meet certain criteria, including having at least 10 percent of their employees engaged in research and development and ensuring that R&D expenses account for a specified proportion of total revenue over the previous three years.

The number of high-tech enterprises in China had been growing rapidly, but some companies, under the guidance of intermediary organizations, used fraudulent financial data and inflated revenue from high-tech products to obtain the status, causing unfair competition among businesses and losses in national tax revenue, Tian Binbin, director of the Tax Governance Research Center at Zhongnan University of Economics and Law, pointed out to Yicai.

Tighter qualification requirements can help ensure the tax incentives return to their core purpose of "encouraging innovation," Tian stated.

Besides Dayou, several other listed companies have been required to repay taxes over the past two years after losing preferential tax status, including mining giant China Rare Earth Group Resources and Technology, elevator supplier IFE Elevators, semiconductor manufacturer Taiji Industry Ltd. Corporation, copper producer Yunnan Copper, and fashion retailer Lancy.

Editors: Dou Shicong, Emmi Laine