China widens departure port tax refund pilot

China on Thursday announced the expansion of a program for exporters to get a tax refund at departure ports, which should shorten their tax refund period, researchers said.

Starting on Sept 1, the pilot will be applied at a total of eight ports－Nanjing, Suzhou, Lianyungang, and Qingdao in coastal areas, and the ports of Wuhu, Jiujiang, Wuhan and Yueyang in Central China, according to a statement of the Ministry of Finance, General Administration of Customs and State Administration of Taxation.

The authorities initiated the pilot in August 2012 at the ports of Qingdao and Wuhan. Qualified exporters will get their refunds at the departure ports once their cargo departs from these ports and is shipped abroad via the Yangshan Port Bonded Area, part of the China (Shanghai) Pilot Free Trade Zone.

Wang Haifeng, a researcher with the Institute for International Economic Research at the National Development and Reform Commission, said that the expansion of the program has "great significance".

"The move is a trade facilitation measure that will help reduce the cost for exporters. The tax refund period will be significantly shortened in the ports and thus ease the cash flow of the exporters," Wang said.

"Instead of directly stimulating exports, the measure will ease capital pressure of exporters through building a favorable market," he added.

China is the world's largest goods trader. Overall trade in the January-July period rose 2 percent from a year earlier with exports edging up 3 percent while imports rose 1 percent. The government pledged at the beginning of this year to achieve foreign trade growth of 7.5 percent for the whole year.

Chinese exporters have increasingly voiced complaints about the challenges, including troublesome tax rebates and difficult financing, that have risen along with costs in recent years.

Liu Tianyong, director of Hwuason Lawyers in Beijing, told the National Business Daily that some exporters cannot make money from selling goods abroad and only have their eye on the tax refund.

"A long-lasting tax refund will surely lower the capital pressure of exporters," Liu said.

Wang added that the expansion of the departure port tax refund pilot will "have some benefits on exports but not very great in the short term.

"The long-term benefits will be very great. The export business in these newly included ports, which are less developed than the Shanghai Yangshan port, will be boosted after the measure is put into effect," Wang said.

He added that the latest move is also an expansion of the pilot measures in the China (Shanghai) Pilot Free Trade Zone, showing the radiation effect of the zone.

"Departure port tax refunds are likely to be expanded across the whole country by September 2015 as the difficulties of expanding the pilot have lessened. This will be an important step to ease the capital shortages for exporters and also shows that the government intends to extend the influence of the Shanghai free trade zone across the country," Wang said.