Editor's Note:Recently, the tax authorities in Guizhou Province released five typical cases providing compliance guidance on the VAT refund-upon-collection policy for comprehensive resource utilization. Since 2025, several listed companies have also disclosed that they or their subsidiaries were required to repay previously received VAT refunds due to issues concerning the application of the relevant policy. These cases highlight the importance for comprehensive resource utilization enterprises to accurately understand and comply with the eligibility requirements for VAT refund incentives. Drawing on these typical cases and tax administration practices, this article examines the major tax risks associated with claiming such incentives and provides compliance recommendations for reference.

01 Tax Incentives Support Comprehensive Resource Utilization, While Tax Administration Practices Highlight the Importance of Compliance

On December 30, 2021, the Ministry of Finance and the State Taxation Administration issued the Announcement on Improving the Value-Added Tax Policy for Comprehensive Resource Utilization (Announcement No. 40 [2021] of the Ministry of Finance and the State Taxation Administration, hereinafter referred to as "Announcement No. 40"), further clarifying the eligibility criteria, refund rates, and relevant administrative requirements for the VAT refund-upon-collection policy applicable to comprehensive resource utilization. This policy helps reduce the tax burden on enterprises engaged in comprehensive resource utilization, ease cash flow pressures, and provide financial support for raw material procurement, daily operations, and the expansion of green business activities, thereby promoting resource recycling and green, low-carbon development.

However, eligibility for VAT refunds upon collection is subject to specific requirements. Enterprises that fail to accurately interpret the relevant provisions or continuously meet the applicable requirements during the period in which they enjoy the tax incentives may face tax risks arising from improperly claimed benefits. On September 23, 2026, the tax authorities in Guizhou Province released five typical cases providing compliance guidance on the VAT refund-upon-collection policy for comprehensive resource utilization. Since 2025, several listed companies have also issued announcements disclosing that they or their subsidiaries were required to repay previously received VAT refunds after the tax authorities determined that they had failed to meet the relevant eligibility requirements.

Tax authorities across China have also strengthened risk identification and follow-up administration concerning the application of the VAT refund-upon-collection policy for comprehensive resource utilization. For example, tax authorities in one locality established a regular information-sharing mechanism with environmental protection authorities regarding environmental penalties, using such penalties as an important factor in reviewing VAT refund applications. In another locality, tax authorities identified comprehensive resource utilization as a key area for screening risks associated with the application of tax incentives. By cross-checking tax return data, invoice information, and financial statements, they identified issues such as discrepancies in raw material descriptions, abnormal ratios, and failure to meet eligibility requirements, and conducted further investigations based on enterprises' actual production and business operations. These tax administration practices demonstrate that interdepartmental information sharing, data cross-checking, and on-site inspections have become important methods for tax authorities to identify and verify risks associated with the application of tax incentives.

02 VAT Refund-upon-Collection Policy: Key Risks Highlighted by Typical Cases

According to Announcement No. 40, enterprises seeking to enjoy VAT refunds upon collection for comprehensive resource utilization must ensure that their relevant business activities comply with the Catalogue of Products and Services Eligible for VAT Incentives for Comprehensive Resource Utilization (2022 Edition) (hereinafter referred to as the "Catalogue"). They must also satisfy requirements relating to tax credit ratings, environmental and tax compliance, invoices and supporting documentation, and procurement records. Enterprises may improperly claim tax incentives due to misinterpretation of the policy, accounting errors, or inadequate management practices, potentially resulting in the need to amend tax returns and repay previously received VAT refunds, with late payment surcharges imposed in certain circumstances.

(1) Failure to Meet the Catalogue Requirements for Comprehensive Resource Utilization Projects May Affect Eligibility for Tax Incentives

According to Article 3 of Announcement No. 40, general VAT taxpayers that sell self-produced products derived from comprehensive resource utilization or provide related services may enjoy VAT refunds upon collection, provided that the relevant resources, products, services, and technical conditions comply with the requirements set out in the Catalogue. In practice, some enterprises engaged in comprehensive resource utilization may improperly claim tax incentives due to inaccurate interpretations of the Catalogue's scope and specific requirements. Such risks primarily arise in the following circumstances.

First, incorrectly treating resource utilization activities as eligible projects. Not all business activities involving comprehensive resource utilization qualify for VAT refunds upon collection. Enterprises should not assume that their products or services are eligible for tax incentives merely because their operations involve environmental protection or resource recycling. Instead, they should assess whether the relevant activities fall within the scope specified in the Catalogue.

Second, misclassification of raw materials used in comprehensive resource utilization. Some enterprises assume that the raw materials they actually use fall within the categories specified in the Catalogue simply because their names are similar. For example, one enterprise considered construction phosphogypsum and construction phosphogypsum powder to be the same type of resource as "phosphogypsum" specified in the Catalogue and applied for VAT refunds upon collection on the grounds that it used phosphogypsum to produce plastering gypsum. However, a tax investigation revealed that the enterprise's primary raw material was phosphogypsum powder, which did not meet the relevant policy requirements. As a result, the enterprise amended its tax returns and repaid the corresponding VAT refunds. Similar disputes concerning raw material classification have also arisen in tax repayment announcements issued by listed companies. One listed company disclosed that its subsidiary used "calcined coal gangue," produced through screening, calcination, and other processing procedures, as a raw material. The tax authorities determined that this material did not qualify as "waste residue" or "coal gangue" under the relevant policy and therefore failed to meet the eligibility requirements for VAT refunds upon collection. According to subsequent announcements, the company repaid approximately RMB 37 million in previously received VAT refunds and paid approximately RMB 21.5 million in late payment surcharges. These cases demonstrate that similarities in the names or uses of raw materials do not necessarily mean that they fall within the same resource category under the relevant tax policies. In particular, for raw materials that have undergone processing, enterprises should conduct a comprehensive assessment of their sources, processing techniques, material properties, and the policy provisions applicable during the relevant periods to mitigate the risk of VAT refund recovery arising from incorrect raw material classification.

Third, failure to meet technical standards and other applicable requirements for resource utilization products. The Catalogue specifies requirements for different projects regarding raw material proportions, product quality, production processes, production capacity, and environmental indicators. Even where the resources used and products manufactured by an enterprise fall within the scope of the Catalogue, the enterprise must still satisfy the relevant technical standards and other applicable requirements. For example, one enterprise applied for VAT refunds upon collection for producing recycled oil and pyrolysis carbon black from waste tires and rubber products. During an on-site inspection, the tax authorities found that key quality testing indicators for its recycled oil products failed to meet the technical standards specified in the Catalogue and consequently suspended the processing of its VAT refund applications. After the enterprise improved its production processes and submitted its products for retesting, the tax authorities resumed processing its VAT refunds only after technical verification confirmed compliance with the required standards. Therefore, enterprises should not only verify compliance with the relevant technical requirements when initially applying for VAT refunds, but also continuously monitor whether indicators such as raw material proportions, production processes, and product quality remain compliant throughout the period in which they enjoy the tax incentives. In addition, enterprises should examine whether their projects are subject to restrictions under industrial policies or environmental protection catalogues and whether they possess the necessary operating qualifications for hazardous waste utilization.

(2) Incorrect Determination of the VAT Refund Base or Refund Rate May Result in Excessive Refund Claims

Even where enterprises meet the eligibility requirements for VAT refunds upon collection, they may still claim excessive refunds due to an inaccurate determination of the income eligible for refunds or the incorrect application of refund rates. Such risks primarily arise in the following two circumstances.

First, including income from ineligible activities in the VAT refund base. Some enterprises mistakenly assume that all income associated with comprehensive resource utilization activities qualifies for VAT refunds upon collection. As a result, they fail to separately account for income from eligible projects and other business activities, thereby overstating the refund base. For example, an environmental engineering enterprise provided wastewater treatment services that qualified under the Catalogue but also included income from ancillary services outside the scope of the tax incentive, such as "off-site pumping station management fees" and "pipeline network fees," in its VAT refund base. Following an investigation by the tax authorities, the enterprise excluded the ineligible income and repaid the excess VAT refunds received.

Second, applying incorrect VAT refund rates. Under the Catalogue, different comprehensive resource utilization projects are subject to different refund rates, and not all eligible projects qualify for a full refund. In practice, some enterprises fail to correctly identify the applicable project categories specified in the Catalogue and mistakenly claim refunds at a rate of 100%. Therefore, enterprises should determine the applicable refund rates based on their actual business activities to avoid excessive refund claims resulting from the incorrect application of refund rates.

(3) Non-compliant Documentation for Recycled Resource Procurement May Affect Eligibility for VAT Refunds on Related Sales Income

Announcement No. 40 requires taxpayers purchasing recycled resources to obtain VAT invoices or other compliant supporting documents in accordance with the relevant regulations. Where taxpayers fail to obtain the required documents, the sales income derived from products made using the corresponding recycled resources is not eligible for VAT refunds upon collection. For example, a listed company disclosed that, following an internal review, it determined that certain invoices previously obtained from individual suppliers were non-compliant. The company therefore reversed the corresponding input VAT credits and paid the additional taxes due, while also applying for VAT refunds upon collection under the comprehensive resource utilization policy. Subsequently, during a review of the refunds, the finance authorities determined that the relevant refunds did not meet the policy's eligibility requirements. As a result, the company was required to repay more than RMB 15 million in previously received VAT refunds.

It should be noted that the above documentation requirements apply specifically to the procurement of recycled resources. In its official policy guidance, the State Taxation Administration clarified that where an enterprise generates electricity or heat using waste heat or residual pressure produced during its own industrial operations, the relevant resources are not obtained through procurement. Therefore, even without corresponding invoices or supporting documents, the enterprise may still apply for VAT refunds upon collection, provided that it satisfies the other requirements stipulated in Announcement No. 40.

(4) Incomplete Recycled Resource Procurement Records May Hinder Verification of Eligibility for Tax Incentives

Announcement No. 40 requires taxpayers to establish and maintain recycled resource procurement records for future inspection, documenting information such as supplier details, resource names, quantities, prices, settlement methods, and the acquisition of invoices and other supporting documents. For example, a building materials enterprise used a mobile application to record information on construction waste collected free of charge. However, due to incomplete records, it was unable to effectively trace the sources and subsequent movement of the raw materials. Following guidance from the tax authorities, the enterprise supplemented and improved its procurement records, enabling it to claim VAT refunds upon collection in compliance with the relevant requirements. This case demonstrates that even where recycled resources are collected free of charge, enterprises should maintain proper procurement records in accordance with the relevant regulations to ensure that information on the sources, quantities, and movement of raw materials is complete and traceable.

(5) Environmental Penalties May Trigger a Suspension Period for Tax Incentives, with Continued Refund Claims Subject to Recovery

According to Announcement No. 40, taxpayers that have enjoyed VAT refunds upon collection and are subsequently subject to penalties for violations of environmental protection laws and regulations, including a single fine exceeding RMB 100,000, are prohibited from enjoying such incentives for six months, starting from the month in which the penalty decision is issued. For example, a building materials enterprise was fined RMB 158,000 in December 2024 for violating environmental protection regulations. Nevertheless, the enterprise continued to apply for VAT refunds during the six-month suspension period from December 2024 to May 2025. Following an investigation by the tax authorities, the enterprise repaid the VAT refunds received during the suspension period. This case demonstrates that even where an enterprise's comprehensive resource utilization projects meet the requirements of the Catalogue, environmental penalties may still affect its eligibility for VAT refunds. Enterprises should promptly review any penalties imposed on them and adjust their VAT refund applications in accordance with the applicable suspension periods to avoid improperly claiming tax incentives.

(6) Inadequate Tax Credit Ratings or Tax Violations May Affect Eligibility for Tax Incentives

According to Announcement No. 40, taxpayers seeking to enjoy VAT refunds upon collection must not have a tax credit rating of C or D. In addition, during the six-month period preceding and including the tax period for which a refund is claimed, they must not have been subject to penalties imposed by the tax authorities for violations of tax laws and regulations (except for individual fines of RMB 100,000 or less), nor have engaged in fraudulent export VAT refund claims or the issuance of false invoices. Therefore, even where an enterprise's comprehensive resource utilization projects meet the requirements of the Catalogue, it may still lose eligibility for VAT refunds due to a downgrade in its tax credit rating or relevant tax violations. Enterprises should continuously monitor their tax credit ratings and tax compliance status, promptly identify changes affecting their eligibility for VAT refunds, and avoid improperly claiming tax incentives.

In addition to the risks of improperly claiming tax incentives due to misinterpretation of policies, accounting errors, or inadequate management practices, enterprises should also be alert to deliberate attempts to fraudulently obtain VAT refunds upon collection. In practice, some enterprises create the false appearance of eligibility for tax incentives by fabricating production and sales transactions involving comprehensive resource utilization products, overstating the proportion of qualifying raw materials used, falsifying product testing reports, inflating sales revenue through fictitious related-party transactions, or misrepresenting substandard products as compliant products, thereby unlawfully obtaining VAT refunds.

Compared with unintentional improper claims, deliberate fraudulent claims may result in more severe legal consequences. Enterprises may not only be required to repay the VAT refunds obtained and pay late payment surcharges, but may also face administrative penalties for tax evasion or other tax violations. Where such conduct constitutes a criminal offense, criminal liability may also be pursued in accordance with the law.

03 Tax Compliance Recommendations for Comprehensive Resource Utilization Enterprises Claiming VAT Refunds upon Collection

(1) Pre-Application Review: Accurately Verify Eligibility Requirements

Before applying for VAT refunds upon collection, enterprises should review Announcement No. 40 and the Catalogue to verify whether the raw materials actually used, products manufactured, or services provided fall within the scope of the tax incentives, whether the proportions of qualifying raw materials and technical indicators of the products meet the prescribed standards, and whether their tax credit ratings, environmental compliance status, and relevant operating qualifications satisfy the applicable requirements.

For recycled resources that have undergone processing, where disputes arise concerning their classification or inclusion in the Catalogue, enterprises should conduct a thorough assessment based on supporting materials such as raw material sources, production processes, and product testing reports. Where necessary, they should proactively communicate with the competent tax authorities to mitigate the risk of disputes over the recovery of VAT refunds arising from differing interpretations of the relevant policies.

(2) Ongoing Management: Strengthen Continuous Monitoring and Documentation Management

Enterprises should strengthen coordination among their finance, procurement, production, quality control, and other departments, and continuously monitor factors affecting their eligibility for VAT refunds, including the proportions of qualifying raw materials used, product technical indicators, environmental penalties, and tax credit ratings. Where new products are introduced, raw materials are changed, or production processes are adjusted, enterprises should promptly reassess their eligibility for tax incentives and adjust their VAT refund applications as appropriate.

Meanwhile, enterprises should establish mechanisms for reviewing VAT refund applications and retaining supporting documentation, submit written declarations of compliance with eligibility requirements as prescribed, accurately distinguish income from eligible projects from that derived from ineligible activities, obtain compliant invoices and supporting documents, and maintain complete procurement records. They should also strengthen cross-checking of procurement, production, sales, and tax return data to ensure that the supporting evidence for claiming tax incentives is authentic, complete, and traceable.

(3) Post-Application Response: Conduct VAT Refund Reviews and Resolve Tax Disputes

Enterprises should regularly conduct compliance reviews of VAT refunds upon collection that they have previously received, examining their eligibility for tax incentives, the calculation of refund amounts, and supporting documentation in accordance with the policy provisions applicable to the relevant tax periods. Where non-compliance with policy requirements is identified, enterprises should promptly verify the relevant circumstances and take appropriate measures in accordance with the law, including amending tax returns and repaying VAT refunds previously received.

Upon receiving tax risk alerts from the tax authorities, enterprises should verify the relevant facts and legal grounds, and review the tax periods involved, the scope of VAT refunds subject to recovery, and the calculation of late payment surcharges. Where disputes arise concerning the application of relevant policies, particularly regarding raw material classification or product categorization, enterprises should promptly collect and organize supporting evidence, proactively communicate with the tax authorities, and present factual explanations and legal arguments. Where necessary, they should seek professional assistance to protect their legitimate rights and interests.