Tax deferral refers to the deferral of tax payment for a certain period of time. In a narrow sense, tax deferral refers specifically to the deferral of tax payment by taxpayers in accordance with the relevant national regulations on tax deferral; in a broad sense, tax deferral also includes the financial arrangements and tax plans that taxpayers can use to achieve the purpose of tax deferral in accordance with other national regulations, such as the financial arrangements for tax deferral in accordance with depreciation policies, inventory valuation policies and other regulations. The government formulates tax deferral regulations mainly for the following reasons:
First, it avoids collecting taxes first and then refunding them, saving tax collection costs. For example, my country stipulates that goods entering duty-free areas from abroad are exempt from value-added tax and consumption tax, unless otherwise stipulated by the state; if goods entering bonded areas duty-free are transported to non-bonded areas in the future, value-added tax and consumption tax will be levied according to regulations; if products produced in bonded areas are transported abroad in the future, value-added tax and consumption tax will be exempted, unless otherwise stipulated by the state. This regulation is a type of tax deferral in nature.
Second, it encourages and promotes investment. For example, some countries allow that as long as the profits of foreign subsidiaries remain abroad for continued investment and operation, and are not remitted back to China, the tax can be deferred until the profits are remitted back to China. Therefore, tax deferral is also part of the country’s fiscal and taxation policy.