Li: VAT refunds key to stable economy

Relief measure provides direct, efficient support to micro and small businesses

China will implement value-added tax credit refunds on a large scale to provide strong underpinnings for keeping the operations of market entities stable and maintaining job security, as part of efforts to sustain stable macroeconomic performance, according to a decision on Monday at a State Council executive meeting chaired by Premier Li Keqiang.

The meeting noted that the total VAT credit refund this year is worth around 1.5 trillion yuan ($236 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, worth around 1 trillion yuan. Outstanding VAT credits will be refunded in one lump sum by the end of June. Newly added credits will be fully refunded on a monthly basis starting on April 1.

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 conservation and environmental governance, and transportation, storage and postal services will be fully refunded.

The refunding process for these 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 on 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. These will support localities in implementing the VAT credit refunds and tax and fee cuts, and ensuring employment and basic living needs.

"This is also a clear message to the market that we remain committed to encouraging, supporting and guiding the development of the nonpublic 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, to ensure that local authorities have on their books enough funds for no less than half a month's tax refunds.

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

"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.

In addition, policy consistency will be maintained, the meeting decided. Policies introduced in recent years for keeping the economy stable and boosting market vitality will be extended wherever possible, and policies that adversely affect market expectations will be prevented or rectified.

International economic and financial developments will be closely watched in order to plan ahead and address new challenges. Targeted measures will be taken to anchor market expectations and boost market confidence.

Furthermore, sustained efforts will be made to stabilize foreign trade and investment, and the RMB exchange rate will be kept generally stable at an adaptive, balanced level.