Cuts to value-added tax (VAT) rebates will not hurt the competitiveness of China's export sector, a senior official says. The director of the Finance Ministry's tax policy department, Liu Kegu, said China's average pay-back rate was in line with its neighbouring competitors in Asia which gave a rebate on exports of 6 to 8 per cent. China's rebates average 8.26 per cent after it cut the rate twice last year, compared with 12.86 per cent in the second half of last year. 'The reduction of the rebates will only have a short-term impact on foreign enterprises, but not any long-term effect, as we had studied the situation when we decided to lower the rate,' Mr Liu said. The cut was prompted by the state's heavy burden of rebates - 50 billion yuan (about HK$45.6 billion) in arrears - to be paid back to exporters in two years. Many foreign enterprises and mainland export and import companies have complained about the cuts. The delay in paying the rebates caused cash-flow problems for some. Mr Liu proposed that foreign enterprises raise prices to absorb the increased costs resulting from the reduction of VAT rebates. He said although China had given generous rebates to enterprises before, the benefits were offset by punitive anti-dumping charges by overseas countries which found China's low-priced exports threatening their home industries. Mr Liu advised businesses to improve efficiency, lower costs and adjust product structure to maintain their export competitiveness. He did not expect Beijing to further change the rebate rate in the short term. 'Any adjustment depends on changes in various factors, such as the state's finances, benefits of enterprises, the performance of the export sector and the balance of international payments.' To level the playing field for domestic enterprises, China has begun to overhaul the preferential tax policies to foreign enterprises which used to cover import duty exemptions, corporate tax perks and tax reductions and exemptions by regional governments on domestic taxes. Mr Liu said Beijing would maintain the preferential corporate income tax policy, but the exemptions on domestic tax items would be changed.