Recently, three authorities including the Ministry of Finance ("MOF") have jointly issued the Circular on Matters Concerning Adjustment and Improvement of the Mechanism of Refundable Uncredited Value-added Tax Borne by Local Governments and the Related Budget Management (the "Circular"), retrospectively effective from September 1, 2019.
The Circular is divided into five parts which deal with the local sharing mechanism, the setup of budget items, handling of refund of value-added tax (VAT) from the treasury, financial treasury adjustment, and stricter regulation of refundable uncredited VAT, respectively. Among others, the Circular states that among the 50% of refundable uncredited VAT that is borne locally, 15% shall be borne by the local government of the place where the enterprises are located, while the rest 35% shall be shared by various regions according to the ratio of VAT revenues distributed to each region to the gross revenues distributed to such region; such ratio will be determined by the MOF in accordance with the actual VAT revenues distributed to each region in the preceding year. In practical operation, the 15% portion will be directly refunded by the province where the enterprises are located, while the 35% portion will be paid temporarily from the provincial budget funds of the place where the enterprises are located; where the temporary advancement payments are less than the due amount, the deficit will be paid on a monthly basis from the provincial budget funds of the place where the enterprises are located to the central budget funds, and where the temporary advancement payments are more than the due amount, the excessive part will be paid on a monthly basis from the central budget funds to the provincial budget funds of the place where the enterprises are located.