The State Council has recently issued the Plan for Promoting the Reform of the Distribution of Tax Revenue Between Central and Local Governments After Large-scale Tax and Fee Reductions (the "Plan").
The Plan rolls out measures in three aspects. First, the policy that central and local governments will share equally value-added tax (VAT) revenue will be maintained. Second, the mechanism on bearing the refundable uncredited VAT will be adjusted and improved. Third, consumption tax will be levied at the subsequent business process, and consumption tax revenue will be retained by local governments step by step. According to the Plan, a long-term mechanism on refund of uncredited VAT will be established, the scale of VAT refund will dependent on the trend of fiscal revenue, and the half-and-half VAT distribution system for central and local governments will remain unchanged. For the locally-borne portion (50%) of refundable uncredited VAT, which used to be completely borne by the local government of the place where enterprises are located, the local government will bear 15% of the refundable uncredited VAT first, and then make advance payments for the remaining 35%; however, this 15%-35% allotment will be re-balanced according to the percentage of the last year's VAT revenue each region shares; in case the advance payments are higher than the due portion, the excessive payments will be recovered on a monthly basis as a result of the fiscal fund allotted from the central treasury to the treasury of the province where the enterprises are located. This adjustment is a move to ease the VAT refund burden on some regions.