On August 22, 2025, China’s Ministry of Finance and the State Administration of Taxation jointly issued a new announcement clarifying and refining the country’s value-added tax (VAT) rebate policy. The updated measures reflect Beijing’s commitment to easing financial pressure on enterprises, enhancing policy precision, and aligning tax practices with long-term economic priorities such as manufacturing, innovation, and environmental protection.
VAT Rebates: A Tool to Support Liquidity
As China’s single largest source of tax revenue, VAT contributed over 6 trillion yuan in 2024, accounting for more than 30% of total tax receipts. VAT is calculated by offsetting output tax against input tax, with tax credits emerging when input exceeds output,often due to inventory buildup, large-scale procurement before sales, or mismatched tax rates.
The revised rebate system ensures that qualified enterprises no longer face indefinite delays in accessing funds tied up in tax credits. By refunding these amounts, the state effectively eases liquidity constraints, particularly in industries where capital requirements are high and cash flow is sensitive.
Policy Evolution
China first piloted VAT rebates in 2011 for selected sectors, later expanding the system in 2019 and 2022 to cover more industries and allow one-time refunds of accumulated credits. The current revision marks another step toward normalizing the rebate mechanism by introducing greater clarity and expanding monthly full refunds to additional sectors.
Key Features of the 2025 Revision
Starting in September 2025, the policy introduces the following changes:
- Full monthly refunds of VAT credits for enterprises in four priority sectors: manufacturing, scientific research and technical services, software and IT services, and ecological protection and environmental governance.
- Adjusted proportions and conditions for rebates in other industries, reflecting sector-specific characteristics.
- A separate framework for real estate developers, allowing refunds of up to 60% of new VAT credits under defined thresholds, supporting the industry while managing systemic risks.
The announcement also clarifies eligibility: companies must demonstrate that more than half of their VAT sales come from the designated industry classifications. For most other sectors, eligibility requires six consecutive months of positive tax credits, with a minimum threshold of 500,000 yuan at the end of the qualifying period.
Improving Policy Accuracy and Administration
The adjustments highlight Beijing’s aim to maintain consistency for manufacturing and real estate while sharpening the policy’s focus on national priorities such as industrial upgrading, technological innovation, and green development. The policy also introduces safeguards to reduce administrative burden, limit opportunistic claims, and improve transparency.
Enterprises are given two pathways: they may either apply for rebates or opt for immediate refunds, but once selected, the choice cannot be altered for 36 months. This measure enhances predictability while encouraging companies to plan tax strategies in line with operational needs.
Broader Implications
By refining the VAT rebate system, China is signaling several priorities:
- Supporting enterprise liquidity at a time when cash flow pressures remain a key challenge.
- Targeting strategic industries in line with national development goals.
- Standardizing tax administration to reduce management costs and ensure fairness.
- Building policy credibility, aligning China’s VAT rebate practices more closely with international standards.
Outlook
The continued refinement of VAT rebates reflects China’s broader effort to modernize fiscal policy tools. For businesses, the improved system offers greater certainty, faster access to funds, and clearer eligibility rules. For policymakers, it balances the dual objectives of stimulating economic vitality and maintaining risk control.
As the rebate framework becomes increasingly normalized, it is likely to remain a cornerstone in Beijing’s strategy to support growth, enhance innovation, and sustain momentum in green transformation.