China’s Tax Revenue Sinks Amid Rollout of New VAT Refund Policy

A new value-added tax (VAT) refund policy to help struggling small businesses had a devastating impact on the budgets of many local governments in its first month of operation, official data show, underscoring the financial cost of shoring up the economy amid the worst wave of Covid-19 outbreaks since early 2020.

Several cities in eastern and southern China saw their fiscal revenue plummet in April after the new VAT credit refund system went into effect, government data show. The changes are adding pressure on local finances already suffering from a slowdown in economic growth that’s crimping tax receipts from corporate profits and consumption.