China's large-scale value-added tax credit refund program is expected to help keep market operations stable, relieve the burden on businesses and contribute to employment stability, experts and business owners said.

On March 22, the Ministry of Finance and the State Taxation Administration jointly issued a document outlining the details of this year's VAT program for small and micro businesses. Newly added credits will be fully refunded on a monthly basis starting from April 1.

Total VAT credit refunds are expected to amount to 1.5 trillion yuan ($235 billion), with priority given to micro and small businesses and the manufacturing industry, according to the document.

The program was mentioned in the Government Work Report presented last month.

On March 21, the executive meeting of the State Council, China's cabinet, decided on specific measures. In its statement, the meeting noted that the program is intended as a relief program to support businesses directly and efficiently, as well as cultivate sources of tax revenue and meaningfully refine the VAT system.

VAT credit refunds given to micro and small enterprises, as well as to the self-employed, will amount to around 1 trillion yuan this year. Outstanding VAT credits will be refunded to businesses in one lump sum by the end of June. Refunds will be completed this month for micro enterprises, and in May and June for small enterprises.

Su Jingchun, an associate researcher at the Chinese Academy of Fiscal Sciences, views this year's refund scheme as innovative and timely given the challenges the economy faces.

"This year, the tax refund will also focus on newly generated taxes, while in previous years, only existing taxes were covered," she said. "This indicates that the overall macro policy support this year has grown."

Su pointed out that VAT credit refund credit is not new, but this year, refund proceedings will move faster and additional requirements will be removed, channeling liquidity where it is needed most. This will help businesses sustain more jobs.

According to the document, current refund requirements－that newly added credits should be above zero for six consecutive months, and that credits for the sixth month should be no less than 500,000 yuan－will be suspended while the new scheme is being implemented.

Businesses involved in manufacturing, research and technical services, electricity, heating, gas and water production and supply, software and information technology services, environmental protection and governance, and transportation, storage, and postal services will be prioritized. At the same time, small and micro businesses will be the first to have refunds processed.

Xie Wen, an official from the State Taxation Administration, said that this year's plan is an important institutional advancement to the national VAT taxation system. As the overall refund is sizable and will likely benefit many businesses, it will be particularly significant.

"Compared to previous years, this year's large scale refund will prioritize smaller businesses and six specific industries. The role of central and local governments will be brought fully into play," Xie said.

He added that small and micro businesses will make up about 90 percent of all likely beneficiaries. The manufacturing industry will be the largest single sector, making up about 30 percent of the total.

Su said that manufacturing VAT credit refunds in particular will play a significant role in keeping the economy stable.

"Ever since the COVID-19 outbreak, development of the manufacturing industry has played a critical role both in economic recovery and economic stability, and the recovery of manufacturing has also taken the lead in China's overall growth recovery," she said.

She explained that manufacturing businesses are also more likely to generate VAT credits that can be refunded later, adding that as the sector is also facing the three-fold pressure of shrinking demand, a supply slump and weakening expectations, the move is timely and will greatly relieve liquidity burdens.

The document has made clear that on top of paying 50 percent of the tax refunds under the current tax system, the central government will earmark 1.2 trillion yuan in transfer payments to set up three special funds to help local governments implement the VAT credit refunds and tax and fee cuts, which will assist in ensuring employment and basic living needs.

Su said the special funds are critical because this year's refunds will require greater spending by local governments.

"Therefore, the 1.2 trillion yuan in transfer payments from the central government to local authorities will help ensure that VAT credit refunds are processed in a timely manner, and that funding at the local levels will be sufficient as well," she said.