The Chinese government has been cutting taxes and fees since 2018 to reduce the burden of enterprises so they can expand their businesses and thus help boost the economy. And in 2021, the Central Economic Work Conference encouraged more value-added tax (VAT) credit refunds to maintain microeconomic stability.

Comprising tax cuts and VAT credit refunds, the favorable package has become an important part of China's microeconomic and fiscal policy, which is aimed at deepening supply-side structural reform, promoting high-quality development, easing the burden on enterprises and energizing the market players.

According to the State Taxation Administration, as of Nov 11, 2022, the new tax and fee reductions, VAT credit refunds, and tax and fee deferrals had exceeded 3.7 trillion yuan ($537.63 billion). Among them, taxpayers enjoyed 789.6 billion yuan in tax cuts, over 2.3 trillion yuan in VAT credit refunds — 3.5 times that of last year — and 679.7 billion yuan in tax and fee deferrals.

These favorable policies have increased the flow of money for small and medium-sized enterprises, thus easing the pressure on them and offering them an opportunity to boost their competitiveness and promote innovation.

Take for example the VAT credit refunds, which account for the biggest percentage of the total sum. By refunding taxes on goods that haven't been sold, VAT credit refunds can ease the constraints created by the slow trickle of cash on the company, shorten the idle time of money, and improve the efficiency of capital.

Besides, as the economy recovers, enterprises with unsold goods will soon clear their inventories and make some profits and therefore can help to gradually return the early tax to the government. Thus, VAT credit refunds will provide timely support to the companies hit hard by the pandemic and yet they will not shrink the space for fiscal revenue.