An Analysis of the Sharing Mechanism of VAT Excess Input Credit Refund

Value-added tax (VAT) is a tax levied on the realized value added in the production and consumption process when the excess VAT input tax credit is carried forward to be deducted in the next period. The refunding of excess VAT input tax credit changes the value-added tax into a consumptionbased value-added tax levied only on final consumption. The tax refund of VAT excess input credit is a deferred tax benefit given to enterprises of a going concern. Tax refund will make the governments' liquidity into enterprises' liquidity, reduce the tax burden of enterprises, but increase the pressure of government financial fund management. The current local sharing mechanism of refunding VAT excess input credit provides the fund cost sharing and refund risk sharing among the participating regions. From the perspective of inter-period revenue sharing and tax refund burden, this paper analyzes the provincial and sub-provincial tax refund sharing mechanism, which results in tax transfer between provinces and cities and the tax transfer between cities and localities in sub province. The current local tax refund sharing mechanism can be regarded as a new inter-regional horizontal transfer payment mechanism which is good to the implementation of refunding policy.