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China releases CNY 420bn VAT credits as economy slows

Over 500,000 business receive CNY 420 billion (approx €700bn) to boost COVID-hit economy

The accelerated release of credits to small businesses and larger corporations in certain sectors is giving large scale liquidity to the economy.  The first wave of VAT repayments has been paid over to 527,000 taxpayers. This will continue throughout 2022.

The Chinese finance and tax authorities have also brought forward to May 2022 accelerated VAT credits to May instead of the original July timetable.

The IMF has just cut its forecast for Chinese growth to 4.4% for 2022, compared to the government’s target of 5.5%.  First quarter 2022 growth was 4,8%, slightly ahead of forecast.

Small and medium sized businesses to receive CYN 1.5 trillion overpaid VAT to ease credit concerns

Concerns around slowing growth rates led to the Chinese government committing to releasing this year CNY 1.5 trillion (approx $236 billion; €215 billion) of Value Added Tax credits.  This is excess VAT that small and medium sized businesses are due back on their VAT returns.

Growth concerns ahead of leadership elections prompt VAT refunds

The VAT refunds are part of a total tax give away of CYN 2.5 trillion to help boost the economy, coordinated by the Ministry of Finance and the State Taxation Administration.

China’s scaled down growth target of 5.5% already looks a stretch target according to Fitch, the rating agency. Concerns centre on the global economy following the COVID pandemic and Russian invasion of Ukraine., and well as problems in the domestic property market. The government is concerned to support the economy ahead of a leadership election later this year.

The refunds will happen before the end of May (previously July) 2022, with micro-businesses due by the end of April.

Going forward, the conditions for credit refunds will be loosened from the existing six months of credit requirements above 500,000 yuan.

As well as small businesses, a range of sectors will also be included in the accelerated tax refund between July and the end of the year:

  • Research and development
  • Gas, electricity, hearing and water
  • Transportation
  • Storage
  • Postal services
  • Software
  • Ecological protection

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