Indirect Tax News - July 2022

Schedule for refund of excess input VAT credit accelerated

China’s Ministry of Finance and the State Administration of Taxation have issued three sets of guidance that accelerate the schedule for certain taxpayers to receive a refund of excess input VAT (Circular [2022] No. 17 issued on 17 April 2022, Circular [2022] No. 19 issued on 19 May 2022 and Circular [2022] No. 21 on 7 June 2022). The policies in the circulars—which apply as from the date the relevant circular was issued—aim primarily to boost cash flow, mitigate other economic burdens on businesses and enhance policies to ensure stable growth (for prior coverage, see the article in the April 2022 issue of Indirect Tax News).

Under China’s VAT rules, a business is required to pay VAT (at rates ranging from 6% to 13%) on the difference between its output tax and its input tax. If the amount of the output tax is insufficient to cover the input tax, the excess (i.e., overpaid input VAT) may be carried forward and offset against output VAT in the next taxable period. Certain taxpayers, however, are permitted to request a refund of the unutilised input VAT in the current period. The ability to obtain a refund previously applied only to enterprises in the advanced manufacturing sector but this has been expanded to include micro and small enterprises (regardless of the industry), as well as qualifying enterprises in seven new sectors (see below).

The main features of the three circulars are as follows:

Circular No. 17: VAT credit refunds for micro and small enterprises were completed by 30 April and 30 June, respectively. Medium-sized enterprises that fulfil specific conditions are permitted to request a VAT credit refund as from 1 May 2022 rather than as from 1 July 2022 under the previous policy.

Circular No. 19: Qualifying large enterprises are permitted to request a VAT credit refund as from 1 June 2022 rather than as from 1 October 2022 under the previous policy.

Circular No. 21: The scope for obtaining a VAT credit refund is expanded to include the following sectors:

  • Wholesale and retail;
  • Agriculture, forestry, animal husbandry and fishery;
  • Accommodation and catering;
  • Household services, repairs and other services;
  • Education;
  • Health and social work; and
  • Culture and entertainment.

Enterprises in these industries may request a VAT credit refund as from 1 July 2022.


Although the procedures and requirements for obtaining a VAT credit refund have been simplified, taxpayers still must submit basic supporting documentation when requesting a refund (e.g., application form, letter of explanation, etc.). As the requirements may differ depending on the location (some tax authorities may require a VAT credit refund verification report from a third-party vendor), affected enterprises should consider contacting the tax authorities in advance to ensure they understand the detailed requirements and procedures and/or seek the tax advice of a professional.

Enterprises that already have obtained a VAT credit refund should be aware that a large refund could trigger a VAT audit where the tax authorities will scrutinise tax compliance, so affected entities may wish to conduct a health check or involve a professional to review the tax compliance status in order to minimise potential tax risks.

Gordon Gao

Jack Shen