China Sets Aside US$235 billion In Tax Credits For Businesses To Regain Strength

China is set to boost its value-added tax (VAT) credit refunds in the country’s latest tax and fee reduction efforts to ease the burden on businesses and shore up the vitality of market entities.

The country’s total VAT credit refunds will reach approximately 1.5 trillion yuan (about 235 billion U.S. dollars) this year, with priority to be given to micro and small firms and the manufacturing industry, Vice Minister of Finance Xu Hongcai told a press conference earlier this week.

“The large-scale tax refunds are the most important part of this year’s new package of tax-and-fee policies,” said Xu, citing the country’s record tax cut and rebate target of 2.5 trillion yuan.

“[Tax refunds] are a direct boost to the cash flow of enterprises, and will benefit them more quickly than tax cuts,” said Premier Li Keqiang while presiding over an executive meeting of the State Council.

Newly added VAT credits will be refunded in full on a monthly basis starting from April 1, while outstanding VAT refunds to micro and small businesses will be completed in one lump sum by the end of June, said a circular jointly issued by the Ministry of Finance (MOF) and the State Taxation Administration.

These moves are to help steady the operation of small and micro firms and promote enterprises in key industries to expand investment and improve production techniques.

In 2016, the country implemented a comprehensive reform in replacing the business tax, a mainstay of local tax revenues, with VAT, and stepped up the reform in 2019 with an improved refund sharing mechanism.

From 2019 to 2021, tax authorities handled a total of 1.23 trillion yuan in excess tax refunds, which played a positive role in shoring up the real economy including the manufacturing industry.

“Excess tax refunds can directly offer cash flow support for enterprises, spur the upgrading of their equipment and expand investment in technology,” said Li Xuhong, a senior researcher with the Beijing National Accounting Institute.

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