(Yicai Global) June 29 -- China plans to return billions of yuan in overpaid value-added tax soon, resolving an issue that has plagued companies by effectively hiking their tax burden.

The Ministry of Finance and State Administration of Taxation yesterday issued a notice on refunding the overpaid amounts this year. Major industries and power grid operators will be the first to receive repayment, including equipment manufacturers and businesses focused on special machinery, research and experimental development. Rebates by province need further clarification.

China's approach to overpaid VAT handicaps high-tech asset-heavy enterprises that need considerable front-end investment and cannot sell their products in the short term. In China, overpaid amounts are carried forward for deduction in the next period. In other tax jurisdictions the system is different. European authorities use refunds rather than future offsets.

Under China's several duty rates, overpaid VAT is common in sectors such as agricultural machinery with higher input and lower output VAT, the Chinese Academy of Fiscal Sciences found in its cost reduction survey last year.

Huge amounts are involved. One Shandong-based company mainly involved in agricultural machinery had overpaid CNY720 million (USD109 million) by the end of 2016, the academy said.

Overpaid VAT totals more than CNY1 trillion (USD151 billion), according to an estimate by Xu Shanda, a former SAT president. The one-time refund of such an amount may exert a significant impact on fiscal revenue, he believes. Because of that, the cabinet decided to make rebates to some sectors this year to ease their circumstances.

Three tax reduction measures -- VAT refunds for some sectors, lower VAT rates, and the exemption of more small-scale taxpayers -- will shave CNY400 billion from taxes this year.

Editor: Ben Armour