CHINATAX. To implement the Program for Deepening the Reform of State and Local Tax Administration System and the Opinions of the State Council on Boosting Stability of Foreign Trade, further optimize the management of export tax refunds, make better use of the role of export tax refunds in supporting foreign trade development, and push forward the social credit system construction, the State Administration of Taxation (SAT) recently published the revised Measures for Classified Management of Enterprises Eligible for Export Tax Refund (Exemption) (New Measures), effective September 1, for the purpose of differentiated management of exporters. According to some experts and government leaders, the New Measures, following the principles of controllable risks, combination of delegation, regulation and services, and convenience for compliance and tax processing under the spirit of deepening the reform in an all-round way, advocates differentiated management of export companies, which will make export tax refund management more relevant and effective.
Classifying exporters into four categories using rigid levers
The New Measures further refines the classification standards for exporters eligible for export tax refunds (exemption), classifying them into four categories using levers such as tax credit, tax compliance, and net assets, for the purposes of differentiated management and services to ramp up management efficiency, accelerate refunding and make use of the role of refunding in fueling foreign trade.
According to Li Wanfu, director of SAT Taxation Science Institute, the New Measures distinguishes productive companies, foreign trade companies and comprehensive foreign trade service providers based on the business forms of foreign trade, and sets the assessment criteria for class-A companies in each type, making classification criteria more relevant. Class-A exporters must be credit-A or B companies equipped with a sound risk control system for export tax refunds (exemption) and not involved in the past 3 years in issuing over-valued special VAT invoices or other fake vouchers of VAT deduction to fraudulently obtain the refunds. Given that comprehensive foreign trade service providers are asset-lite, the New Measures lowers the proportion of net assets from over 100% to over 30%, and requires senior or general certified enterprises in the Customs credit management category to be credit-A in foreign exchange administration category. In particular, the recognition criteria for comprehensive foreign trade service providers fully show the state’s requirements on supporting the development of new forms of foreign trade.
According to an official from the SAT’s Goods and Services Taxation Department, the New Measures also stipulates that the 5 types of companies such as credit-C companies and those with their tax credit standing not rated should be categorized into class-C enterprises, and the 9 types of companies including credit-D enterprises, discredited enterprises on the list of joint incentives and punishments, and those rated as discredited enterprises in Customs corporate credit management category should be categorized into class-D enterprises, so as to make use of the role of classified management in supervising the creditworthy and spurring the discredited.
Dynamic and timely adjustment of ratings
According to the New Measures, exporter classification will be conducted once a year and completed within one month after their tax credit is rated. State tax authorities that are responsible for classifying exporters shall notify the exporters of the outcomes within 15 working days after the classification is finished, and publish the lists of class-A and D exporters.
The New Measures reflect that the classification of exporters is subject to changes and dynamic adjustment based on the exporter’s compliance with laws and credit standing, and a class-A enterprise does not mean it is class-A ever after, says Professor Fan Yong from the Central University of Finance and Economics. In case that exporters violate tax management regulations or are inspected after case filing as a suspect of a fraud, state tax authorities shall immediately adjust the exporter’s class. For example, if a class-A or B exporter refuses to cooperate with the state tax authority with regard to export tax refunding (exemption), and fails to collect, bind and store vouchers for export tax refunds (exemption) and filing documents, the state tax authority shall downgrade it into a class-C exporter.
Following the requirements of the combination of delegation, regulation and services, tax authorities are required to strengthen ex-ante warning, ongoing reviews and ex-post assessment and verification while offering convenience to exporters, and dynamically adjust the classification of exporters to give more enterprises access to preferential treatment class-A enterprises enjoy. It is widely agreed by experts, scholars and foreign trade company owners that the timely, flexible and dynamic adjustment featuring clear standards and transparent process can motivate and spur exporters to do business in compliance with laws, and more class-C and D exporters to standardize their export behavior to become class-A and B enterprises as early as possible, so that they can enjoy more convenience in tax processing and achieve better development.
Information sharing for more precision management
One highlight of the New Measures is to make full use of the role of information sharing in classified management of export tax refunds to enhance the precision of export tax refund management, says Li Wanfu.
Externally, tax authorities are strengthening cooperation with government departments, credit reporting agencies, financial institutions, excellence selection agencies and industrial societies, and have established with them a cross-departmental linkage mechanism for mutual recognition and application of assessment results and for addressing information asymmetry, which has boosted the construction and development of the social credit system, and facilitated classified management of export tax refunds (exemption). For example, the classified management by Customs and foreign exchange authorities is taken as an essential basis for classified rating of exporters.
Internally, based on the information obtained through tax administration and investigation, tax authorities has developed an accurate understanding of the situations of companies, enhanced the quality and efficiency of information sharing with tax source management departments, taxpayer service departments, audit departments, and import and export duties management departments, and built an information reporting system to immediately pass the information on exporters’ tax credit rating, tax assessment results, tax audit filing and disposal, in a bid to promote dynamic adjustment of classified management and guard against the export tax refund risk.
Incentivizing the creditworthy while punishing the discredited
According to Professor Hu Yijian from Shanghai University of Finance and Economics, state tax authorities have introduced different management and service measures for exporters in different classes, further highlighting joint incentives for creditworthy companies and joint punishments for discredited ones.
For example, in assessing class-A enterprises, the enterprise’ classification with Customs and foreign exchange authorities is also taken into consideration as assessment indicators, in addition to the tax credit standing, thus creating a favorable environment in which those complying with laws will encounter no difficulties. Further, enterprises that are on the list of joint punishments are identified and directly rated as class-D exporters, to ensure discredited enterprises are constrained everywhere.
For class-A exporters, tax authorities provide green channels (special service zones) to allow preferred processing of export tax refunds, and establish a key relation system to solve problems associated with export tax refunding (exemption) in time. For credit-A and class-A exporters, joint incentives are provided in accordance with the MOU on Joint Incentives for Credit-A Taxpayers. For export tax refunds (exemption) declared by qualified class-A exporters, state tax authorities shall complete the procedures within 5 working days after accepting the exporter’s declaration after reviews. For class-B and C enterprises, the review and processing timeframes are shortened from the original 20 working days to 10 and 15 working days respectively. With regard to export tax refunds (exemption) declared by class-D exporters, state tax authorities shall complete the refunding (exemption) procedures within 20 working days after reviewing and accepting the exporter’s declaration and addressing all doubts in accordance with regulations. Overall, export tax refunding has been accelerated.
According to some experts and scholars, the New Measures maximizes service resources for class-A exporters, shortening processing time and simplifying processing procedures, so as motivate these exporters, make use of their driving role, and ultimately promote stability and boom of foreign trade.