Prospects and Problems of Realization of the VAT Neutrality Principle in Russia and China

Olga M. Karpova, Igor A. Mayburov, Yong Fan


The principle of neutrality lies at the core of the European VAT model. In other models, this principle is deemed less important. The most illustrative in this respect is the Chinese VAT system, in which the government has departed from the neutrality principle in order to be able to regulate export structure more efficiently. Since Russia with its resource-oriented export structure is now facing a similar challenge, it may benefit from adopting some of the relevant Chinese experience and thus improve the export potential of its non-resource industries, which is the question this paper seeks to explore. Our hypothesis is that differentiated export VAT refund rates, which signifies a deviation from the VAT neutrality principle, can be used for export regulation. The research relies on the comparative analysis method and the method of analogy. We conducted a detailed analysis of VAT neutrality by focusing on the constitutive elements of the VAT (object of taxation, subject of taxation, tax rates and tax period) and the corresponding types of neutrality. We also compared realization of different neutrality types in China and Russia and the resulting distortionary effects. Our analysis has shown that significant distortions of the VAT neutrality principle are observed in both systems. Some of the elements from the Chinese model can be adopted in Russia, for example, the system of incomplete VAT refunds to exporters. In order to evaluate exporters’ credibility, two criteria may be applied. First, their credibility may be assessed with the help of the Automated System for Monitoring VAT Refunds. Second, companies participating in industrial charters and associations can be deemed more credible than those that don’t. These two criteria could underpin the application of reducing coefficients. The algorithm for setting the values of these coefficients is described. For the second criterion, we calculated the effect that would be achieved if the export coefficients are introduced. Our study has shown that in the Russian context, differentiated export VAT refund rates could open new opportunities for regulation of the export structure and enhance tax compliance of exporting companies.

For citation

Karpova O.M., Mayburov I.A., Yong Fan. Prospects and Problems of Realization of the VAT Neutrality Principle in Russia and China. Journal of Tax Reform. 2020;6(2):124–141. DOI: 10.15826/jtr.2020.6.2.078.

Article info

Received June 19, 2020; Revised July 20, 2020; Accepted August 8, 2020


neutrality principle, tax elements, types of neutrality, distortions of neutrality, export coefficients, differentiation of VAT refund rates


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