Corporate Tax

China’s economic system, business advantages from corporate tax cuts, particularly from SMEs: analysts

Tax service personnel help a corporate (R) financial officer print a list of tax cuts and fee reductions for their company in Fuzhou, capital of southeast China’s Fujian Province, on Aug. 21, 2019. An Online Service with a Clear List Tax and Fee Reduction was promoted across Fujian Province after it was successfully piloted in Fuzhou City. Photo: Xinhua

While some companies said they cut the cost of China’s tax and fee cutting policies and survived amid COVID-19 last year, some small and medium-sized enterprises (SMEs) are finding it difficult to benefit from preferential policies.

More preferential measures have been published to further reduce the tax burden on businesses, especially SMEs. For example, the monthly sales tax threshold for small taxpayers will be raised from 100,000 yuan (US $ 15,250) in sales to 150,000 yuan, the Treasury Department said at a press conference on Wednesday.

“The tax cut policy last year helped our company save about 30 million yuan during the epidemic outbreak, which is about 50 percent of operating costs,” said Chen Chunxing, vice president of the Hubei Association of Industry and Commerce and chairman of The Wuhan Intelligence Elevator Company in central China’s Hubei Province said the Global Times on Friday.

Chen said government measures, including lowering bank loan interest rates, helped companies weather the storm. A year later, Hubei businesses have recovered to pre-epidemic levels.

The temporary and urgent tax and fee reduction measures introduced last year to support businesses will properly expire, including exemptions from social and capital insurance for workers and lowering the VAT rate from 3 percent to 1 percent, the Treasury Department announced on Wednesday.

“Now is the time to pull back the tax cuts without burdening the country,” said Chen. Hubei SMEs were VAT exempt in 2020 and were given preferential electricity prices.

Fujian Kesida Food Company, whose registered capital was 3 million yuan, received tax cuts of 620,000 yuan last year. “It only took three working days from the receipt of the materials to the granting of tax breaks, which quickly increased the company’s liquidity,” reported the media, citing the company’s head.

However, some SMEs see it differently. “To be honest, the tax refunds under these guidelines are too low for our company. It is not worth the human cost to complete the complicated procedures,” a director of a medium-sized chip design company based in Wuhan told Global Times on Friday on condition of anonymity.

China has made a commitment to cut taxes and fees in recent years to ease the burden on businesses. From 2016 to 2020, the reduction in taxes and fees was more than 7.6 trillion yuan. Taxes and fees were cut by more than 2.5 trillion yuan in 2020, data from the State Taxation Administration shows.

It is all the more important to reduce the tax burden on SMEs, as they represent the pillar of the economy and the mainstay of industry, according to analysts.

“SMEs, which make up 90 percent of the total number of companies, contribute about 80 percent to employment, 70 percent to technological innovation, 60 percent to GDP and 50 percent to tax revenue in China,” said Zhang Xiaorong, director of The Cutting-Edge Technology Research Institute announced the Global Times on Friday.

Wang Peng, associate professor at the Gaoling School of Artificial Intelligence at Renmin University of China, said that, for example, sci-tech SMEs are the main force behind industrial innovation in the future. Large numbers of internet businesses, high tech companies, including unicorns, grew up out of SMEs.

“If SMEs can benefit from the tax and fee reduction policies, China’s economic and industrial development will pay off tremendously,” Wang told the Global Times on Friday.

China’s high-tech companies are currently in the phase of industrial growth, and most of them are SMEs that have a small share of GDP, but they are the pillar of the future economy, Zhang said.

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