Abstract: The VAT credit refund is a important measure for the reconstruction of tax neutrality and the promotion of the tax governancemodernization, and it is of great significance for the improvement of the enterprises’ performance in environment, society and governance (ESG). Based on the document of No.70 Caishui (2018) and making use of the data of A-share listed companies in China from 2011 to 2021, this paper conducts an empirical study of the spillover effects of corporate ESG of VAT credit refunds and its action mechanism. The findings show that the implementation of the VAT refunds policy has significantly improved the ESG performance of the pilot enterprises, which is conductive to the green and sustainable development of enterprises. The mechanism analysis reveals that the refund policy has improved the ESG performance of enterprises by easing the financing constraints of the pilot enterprises and stimulating their green energy conversion. This suggests that the VAT credit refund policy can not only provide relief to enterprises but also has a spillover effect in promoting their green transformation and development. The heterogeneity analysis further reveals that the green incentive effect of VAT credit refunds is more prominent in the non-state-owned enterprises and the enterprises with a higher burden of tax retention at the end of the period. Therefore, it is recommended to utilize multi-policy combinations to gather the joint forces and continuously enhance the ability of enterprises to develop in a green and sustainable manner, utilize the multi-tax governance to improve policy synergy degree and fully unleash the effectiveness of combined tax cuts and fee reductions, and continue to deepen the VAT reform, so as to further improve the matching and adaptability of the policy.

Key words: tax reduction incentives, VAT credit refund, corporate performance in ESG, green development