Exporters in the Pearl River Delta are having to wait years to collect overdue value-added tax (VAT) rebates from local tax bureaus, according to companies, investment advisers and tax consultants. Though the exact scale of the problem is difficult to gauge, in some cities local tax authorities are believed to owe exporters more than US$1 billion. The problem stems from the government's VAT rebate policy, which was introduced in the mid-1990s in a successful effort to bolster exports. Under the policy, exporters can apply for a refund on the VAT paid on domestically sourced and imported inputs. But as exports have soared, local governments have fallen behind on their rebate obligations. 'There is a waiting time of 1.5 years right now,' said Alberto Vettoretti, Shenzhen-based partner with investment adviser Dezan Shira. 'The State Tax Bureau does not have the money to allocate [rebates] and the central government is still encouraging exports by giving refunds. 'Refund filings by [exporters] are a quarterly obligation but receiving the money [back] is another matter.' One of Mr Vettoretti's clients has been waiting more than a year for 1.4 million yuan (about HK$1.31 million) in overdue rebate payments. 'As you can imagine this affects [exporters'] cash flows,' he said. One tax consultant employed to chase overdue rebates estimates that Shenzhen alone owes exporters more than US$1 billion. 'A lot of Shenzhen exporters still haven't received their 2002 rebates, and some are still waiting for their 2001 reimbursements,' said the consultant, who asked not to be identified. 'The rebate issue is especially big in the Pearl River Delta because it is China's biggest export base.' The problem also appears to be severe in Zhuhai, where the local tax bureau has given exporters a number and told them to wait their turn for repayment. 'The rebate problem has been around for a long time,' said one investor familiar with the issue. '[Zhuhai] does not have the rebate money and can only borrow from Paul to pay Peter.' The general manager of a European industrial equipment manufacturer based in Zhuhai said his company had to pay an international accounting firm 60,000 yuan to secure 600,000 yuan in overdue rebates. 'You pay the VAT up front but then you have to pay lots of money to a consultant with good tax bureau connections to get it back,' he said. Shenzhen and Zhuhai tax officials contacted yesterday declined to comment on the matter. The problem in no way outweighs the advantages the delta offers exporters. The tax consultant who specialises in VAT rebate collections even thinks the situation is improving. But it does illustrate how bureaucratic obstacles can affect foreign investors in China. VAT is collected by two separate government agencies on the mainland. The local offices of the State Tax Bureau collect the VAT paid by exporters on domestically sourced inputs. Exporters must also pay Customs a 30 to 50 per cent deposit on duties and VAT for inputs imported from abroad. After their products are manufactured and shipped overseas, exporters can submit rebate applications. The paperwork requirements can be onerous, however. Companies, for example, must file Customs, foreign exchange and numerous other documents proving that their exports have been shipped and paid for. Local tax bureaus and Customs offices must also meet centrally mandated collection targets. If they fail to reach their quotas they cannot get enough money back to honour their rebate commitments.