China reforms export tax rebate system

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Last updated at: (Beijing Time) Tuesday, October 14, 2003

China reforms export tax rebate system

China on Monday issued a new plan to reform the export tax rebate system so as to relieve the heavy burden on government coffers.

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China on Monday issued a new plan to reform the export tax rebate system so as to relieve the heavy burden on government coffers.

Since 1985, China has adopted tax rebates for exporting enterprises. The central government paid back a certain proportion of the consumption taxes and value added tax (VAT) to the enterprises after they paid taxes for exported goods. The tax rebates were allowed by rules of the World Trade Organization and widely adopted by many WTO members.

In recent years, however, with the rapid growth of China's exports, government revenues have failed to keep up with the tax rebates owed. This has affected the normal operations of export-oriented enterprises.

Some experts attribute the failure to the unreasonable export tax rebate mechanism, saying it fails to meet the needs of industrial restructuring and the volume of the rebates has grown far beyond the capacity of central government finances.

"The more rapidly exports grow, the heavier the financial burden on the government finances," Chinese Premier Wen Jiabao said recently.

Under the reform plan, the export tax rebate mechanism will be continued, but the refund rate will be lowered. In terms of exports that China does not promote, such as crude oil, the government will reduce the tax rebate rate by a large margin or even abolish refunds.

The new plan also guarantees that increases in central import duties will be used on export tax rebates. Local governments will shoulder some fiscal burdens with the central government in this regard, the plan stipulates.

The plan guarantees payments to export enterprises and payment of old debts with interest.

Many Chinese export enterprises has for long complained about the large amount of tax rebate that is owed by the government. Some small enterprises even went out of business due to financial difficulties.

Recently foreign-funded enterprises in China have also faced serious problems, which affect their international competitiveness and discourage further investment, said an official with the Ministry of Commerce.

After the reform, the rebate rate will be lowered, but the refund will be guaranteed and no new debt will be owed by the government, said the official. Heavy financial burdens on export enterprises will be eased and the total Chinese exports will be promoted, he said.

In 2002, China's central financial deficit reached 309.687 billion yuan (37.3 billion US dollars), while export tax rebates amounted to 115 billion yuan, 15 percent over the allocated budget.

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