China to implement large-scale VAT credit refund to keep macroeconomic stability

BEIJING - China will implement value-added tax (VAT) credit refund on a large scale to provide strong underpinnings for keeping the operations of market entities stable and maintaining job security, as part of effort to sustain stable macroeconomic performance, the State Council's Executive Meeting chaired by Premier Li Keqiang decided on Monday.

The meeting also decided to adopt holistic approaches to anchor market expectations and maintain steady and healthy development of the capital market.

The meeting noted the arrangements as set out in the Government Work Report to promptly introduce and implement policies to keep economic operation stable in view of the latest developments at home and abroad.

The VAT credit refund this year is worth around 1.5 trillion yuan ($235.56 billion). This is a relief measure that can support businesses directly and efficiently. It's also a reform that helps cultivate sources of tax revenue and meaningfully refine the VAT system.

"Under the current circumstances, refunding excess input VAT credits to micro and small businesses and to manufacturing and other key industries is essential for ensuring stable growth at the moment. It is a direct boost to the cash flow of enterprises, and will benefit them more quickly than tax cuts," Li said.

The meeting decided to refund VAT credits to micro and small enterprises and self-employed households as general VAT payers across all sectors, which is worth around 1 trillion yuan.

Outstanding VAT credits will be refunded in one lump sum by the end of June. Refunds to micro enterprises will be completed in April, and those to small enterprises in May and June. Newly added credits will be fully refunded on a monthly basis starting from April 1.

In addition, tax refund requirement that "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 called off on a time-limited basis.

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 be fully refunded, the meeting noted.

The refunding process will start on July 1 and be completed by the end of the year. Newly added credits will also be fully refunded on a monthly basis starting from April 1.

On top of paying 50 percent of the tax refunds under the current tax system, the central government will earmark 1.2 trillion yuan of transfer payments to set up three special funds, to support localities in implementing the VAT credit refunds and tax and fee cuts, and ensuring employment and basic living needs.

The central government will subsidize over 82 percent of the refunds of newly added VAT credits borne by local governments on average, and weigh its fiscal support toward the central and western regions.

"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," Li said. "We treat State-owned, private and foreign-invested enterprises as equals in terms of tax refunds."

The meeting required putting in place a mechanism for advance disbursement of funds, allowing for allocation on a monthly basis and clearing on a rolling basis, to ensure that local authorities have on their books enough funds for no less than half a month's tax refunds.

Fund supervision and state coffer management will be strengthened to ensure that tax refunds will go directly to market entities and subsidies will be directly channeled to prefecture- and county-level governments.

"Fiscal departments should promptly allocate funds against the timetable and strive to get it done as early as possible. Outstanding VAT credits to micro and small enterprises must be fully refunded by the end of June," Li said.

"Meanwhile, irregularities such as tax evasion and tax and subsidy fraud will be resolutely cracked down on and any act confirmed should be punished without leniency. Experience gained from the tax refund practice will be drawn upon to improve the VAT system," Li noted.

The meeting also noted the imperative to closely watch the impact of shifting international situations on the country's capital market. Continued efforts will be made to pursue development as the top priority, manage China's own affairs well, deepen reform and opening up and keep major economic indicators within the appropriate range. Well-calibrated measures will be taken to effectively keep the capital market stable and maintain steady and healthy development.

"We should properly handle problems in capital market operation and foster a stable, transparent and predictable development environment for all market players in line with market-oriented, law-based and internationalized principles," Li said.

The prudent monetary policy will be strengthened to provide greater support for the real economy, and liquidity will be kept reasonably ample, and policy consistency will be maintained, the meeting noted.

Policies for keeping the economy stable and boosting market vitality introduced in recent years will be extended wherever possible, and policies that adversely affect market expectations will be prevented and rectified.

International economic and financial developments will be closely watched, to plan ahead and address new challenges. Targeted measures will be taken to anchor market expectations and boost market confidence. Sustained efforts will be made to stabilize foreign trade and investment.

The RMB exchange rate will be kept generally stable at an adaptive, balanced level, according to the meeting.