China: VAT Credit Refund for Macroeconomic Stability

On Monday, China's State Council's Executive Meeting, chaired by Prime Minister Li Keqiang, agreed to make a large-scale credit refund of the value-added tax (VAT) for providing strong underpinnings and stability of market entities and job security. The decision is an attempt to stabilize macroeconomic performance.

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During the meeting, the adoption of holistic approaches to anchor market expectations and maintain the steady and healthy development of the capital market was among the agreements reached. The arrangements reached in the session will be enlisted in the Government Work Report for further introduction and implementation in the policies to keep economic operation stable given the latest developments at home and abroad.

The VAT credit refund foresees for the current year, is worth around 235.56 billion dollars. It is considered a relief measure for supporting businesses directly and efficiently, helping to develop new further tax sources income and meaningfully refining the VAT system. "Under the current circumstances, refunding excess input VAT credits to micro and small businesses and manufacturing and other key industries is essential for ensuring stable growth at the moment. It is an immediate boost to the cash flow of enterprises and will benefit them more quickly than tax cuts," exposed Li.

The new measure will be implemented for micro and small enterprises and self-employed households as general VAT payers across all sectors, representing around 157.34 billion dollars. It is expected that the outstanding VAT credits will be refunded in one lump sum by the end of June. Enterprises will be refunded entirely in April, and small enterprises in May and June.

The tax refund requirement "newly added credits should be above zero for six consecutive months and newly added credits for the last month should be no less than 500,000 yuan" will be based on a limited period of time.  

The summit underlined the outstanding VAT credits of enterprises in manufacturing, research and technical services, electricity, heating, gas and water production and supply, software and information technology services, ecological protection and environmental governance, and transportation, storage, and postal services will have a completely refunded.

Li remarked that "this is also a clear message to the market that we remain committed to encouraging, supporting and guiding the development of the non-public sector while unswervingly consolidating and developing the public sector. We treat state-owned, private, and foreign-invested enterprises as equals in terms of tax refunds."