Tax rebate system arouses concern
By Dai Yan (China Daily)
Updated: 2004-12-27 08:41

China's export tax rebate system, a new version of which has been implemented for a year, is expected to be further improved next year to ease the concerns of local governments.

The tax rebate system, which shares the rebate payments between central and local governments rather than the central government paying the rebate, has sparked many complaints from the local authorities.

An official from the Ministry of Commerce told China Daily that the government is watching the issue and will study measures to solve the problem.

Director Xie Xuren of the State Administration of Taxation also said at a national conference last week that the improvement of the tax rebate system will be one of the administration's key jobs for next year.

Related government departments have started to more closely monitor the behaviour of regional government and deal with complaints from companies. Local government are required to submit regular reports in a bid to check if anything needs improving or changing.

Tax rebates are common in international trade. Governments usually return value-added and consumption taxes collected during the process of goods production and circulation when these products are sold abroad.

Li Jianchun, director of the Chongqing Municipal Foreign Economy and Trade Committee, said the new tax rebate system has dampened the local government's enthusiasm to promote exports because it can not increase their fiscal income.

Currently, central and local governments share the tax rebate in a proportion of 75 to 25 per cent.

"Exports are growing rapidly. Governments with poor fiscal capacity, especially in middle and western regions, cannot afford big amounts of tax rebates," he said.

Peng Ruilin, head of the Hainan Commercial Bureau, said the local government has to pay all of its increased fiscal income to tax rebates.

"We pay the tax rebate to them but actually we do not collect value-added tax from these goods," Peng said.

Companies in Hainan often buy goods from the hinterland and then export them while the governments in the hinterland collect the value-added tax and Hainan government pays the rebates.

Many coastal cities face similar situations to Hainan as many products processed in other regions often assemble and export through these cities.

The cities in coastal areas are complaining and unwilling to pay the money, said Long Guoqiang, an expert from the State Council Development and Research Centre.

"Even the big export ports in Shanghai, Jiangsu and Guangdong say they can not afford the bill," said Long.

Long said he fears some local governments will move to protect locally-manufactured goods by slowing rebates on exports originating from other regions if the situation continues.

And in some regions, local governments are not encouraging cross-regional purchases and exports and have put restrictions on the establishment of circulation firms.

Long proposes the government should change its tax collection methods to avoid the problem.

"The central government could collect all of the value-added tax and then pay all of the tax rebate, rather than share with local government," Long said.

Li from the Chongqing committee said local protectionism could be prevented by the introduction of a system in which those who levy the tax pay the rebate.

"Or the central government can share the rebate with a proportion of 85 to 15 per cent, to ease the burden of local governments," he said.

The government announced the new tax rebate system last October. It began from January 1 this year. At the same time as the announcement, it also promised to pay off all the owed rebates before the change came into effect because government finances were not well prepared for unexpected soaring exports.

The country's tax departments have paid 200.1 billion yuan (US$24 billion) in overdue export rebates. For tax this year, a total of 188.1 billion (US$22.7 billion) has been paid.

Foreign trading companies say it is a positive progress, which has eased pressure on foreign trade companies of shortage of capital, and facilitated fast growth in foreign trade.

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