Vision - Alibaba

32 Annual Report 2007
Income tax charges increased by 154.2% from
RMB71.5 million in 2006 to RMB181.6 million in 2007.
This increase was primarily due to the increase in
taxable profi t from our operations in China. In 2006 and
2007, our effective tax rates were 24.5% and 15.8%,
respectively. Share-based compensation expense
arising from equity-based awards is not deductible for
tax purposes. If we exclude the effects of such equitybased
awards, our effective tax rates would have been
14.0% and 17.6% in 2007 and 2006, respectively.
On March 16, 2007, the National People’s Congress
approved the new Enterprise Income Tax Law (the “New
EIT Law”). The New EIT Law, which became effective
from January 1, 2008, unifi es the corporate income
tax rate for domestic enterprises and foreign invested
enterprises to 25%. In addition, among others, the
New EIT Law provides for a preferential tax rate of 15%
for enterprises qualifi ed as high and new technology
enterprises (“HNTE”). However, the detailed rules on
the applicable requirements and procedures to apply
for preferential tax treatment as HNTE have not yet
been announced. In December 2007, Alibaba China
obtained a certifi cate issued by the Science and
Technology Department of Zhejiang Province confi rming
Alibaba China’s status as a high and new technology
enterprise. This certifi cate is valid for a period of two
years from the date of issuance. In addition, our
management has conducted research and consulted
relevant third parties as well as performed certain due
diligence procedures to confi rm the view of our board
of directors that Alibaba China will obtain its formal
HNTE designation in 2008 under the New EIT Law
upon the completion of certain administrative approval
procedures. Consequently, Alibaba China used 15% in
the computation of deferred taxes as of December 31,
2007. If Alibaba China does not obtain the formal HNTE
designation in 2008, its applicable enterprise income
tax rate will become 25% in 2008, which would have a
negative effect on our future results.
Depreciation of property and equipment
Our depreciation expenses increased by 9.2% from
RMB54.0 million in 2006 to RMB59.0 million in 2007,
mainly due to the addition of property and equipment
during the year.
The following table presents, for the years ended, the allocation of depreciation expenses and such expenses as a
percentage of revenue:
Year ended December 31,
2007 2006
RMB’000 % of revenue RMB’000 % of revenue
Cost of revenue 23,546 1.1% 21,056 1.6%
Sales and marketing expenses 10,926 0.5 8,349 0.6
Product development expenses 10,995 0.5 9,931 0.7
General and administrative expenses 13,549 0.6 14,707 1.1
Total depreciation expenses 59,016 2.7% 54,043 4.0%
Share-based compensation expense
We seek to structure our employee compensation
packages to allow our employees to share the success
of our business. Therefore, a large number of our
employees have been granted certain equity awards.
Alibaba Group also operates equity award plans
pursuant to which our employees and the employees of
Alibaba Group have been granted options to purchase
shares of Alibaba Group or our shares held by Alibaba
Group. In our consolidated fi nancial statements,
share-based compensation expense arising from
the grant of equity-based awards by Alibaba Group
to our employees is allocated to and included as
part of our expenses. In 2006 and 2007, total sharebased
compensation expense was RMB113.9 million
and RMB152.1 million, respectively. As a percentage
of revenue, share-based compensation expense
decreased from 8.4% in 2006 to 7.0% in 2007.